Morgan Houseell said that investing is not really about what you know, but rather how you behave. Eminent investment writer and partner of the Collaborative Fund says that one should beware of behavioral bias and losses while going out to invest in the market.
Housel is a former columnist in Motley Fool and the Wall Street Journal.
Why two people may not experience the same investment
Houseall says that all investors have different experiences during investing. Citing the example of two American investors, he said that coming from a humble background, one of them managed to earn millions through successful investments, but the other enjoyed his privileged upbringing despite his poor investment decisions. Was forced to declare bankruptcy.
Learning about investment is necessary
Houseel says investors need to learn about investing. However, this aspect is often not given enough attention. Furthermore, investing is very difficult to teach, as it is not analytical and cannot be expressed with clean formulas or plugged into a spreadsheet.
Risk is not universally regarded as
Howell states that risk is not universally considered equal by all. Citing Austria as an example, he said Austrian citizens opted not to operate the $ 1 billion nuclear power plant for security reasons, despite the fact that other nations such as the US, Britain and Japan were all nuclear Were using energy safely.
He further cited the example of the US and Australia and said that while Australia has hardly seen any slowdown in the last 27 years, the US has seen three times during this period.
He said, “These two nations hold absolutely opposite views on the risk of recession – while the US is paranoid about it, Australia remains complacent. Likewise, individual investors’ willingness to risk depends on their personal history, ” They said. An address for
#IndiaInvConf 2019, whose audio is now available on YouTube.
While investors can easily explain the past, says Houseall, they are terrible at predicting the future.
Get maximum opinion
Houseel advises investors to talk to many people because it can help broaden one’s horizons. He suggests talking to people with whom investors disagree, as this may help them avoid confirmation bias. Furthermore, talking to people in different emotional states is especially important for financial advisors to gauge a client without feelings.
Follow Simple Investment Rules
Houseall says most investors do not follow simple rules for investing. This, Hossel feels, can cause injury in the long run. Taking cancer research as an example, he said that it is very difficult to raise money for cancer prevention as opposed to cancer research. This is despite the fact that cancer prevention has more impact than cancer research. Nevertheless, the former is not just very intellectually stimulating.
The same applies to investments, in which most investors do not follow simple rules of investment and instead seek complex principles.
Houseall said veteran investor Warren Buffett also follows simple investment rules and follows a simple approach in everything he does. Their desk is simple and clutter-free, while most investors keep themselves cluttered and cluttered.
He says that the goal of investment is not to reduce boredom, it is to maximize returns. If a financial advisor wants their clients to move around, they should keep things simple.
“People don’t think about risk in an analytical way; they think about risk based on their historical experiences in relation to inflation, stock market performance, etc. People don’t get what they want or they want What do they expect from financial markets. They get it. They said there is no investment recommendation if a customer cannot live with it. The goal of investment is not to reduce boredom, it is to maximize returns.
Keep calm and clear mind
Howell states that one should be afraid to live out of greed near market peaks and sell out of fear near market bottles. Keeping a clear mind can help prevent someone from breaking up in the long run.
Quoting Eisenhower, he says, “The great leader, talented in leadership, is the man who can do mediocre work when everyone is going crazy. The same applies to successful investing.”
No fixed pattern for investor psychology
Houseell states that it is impossible to predict financial markets because there is no definite pattern to the psychology of the investor, as investors can become anxious, upset and over-focused at any time due to any global or economic event.
“Every year since 2009, various financial publications call themselves hoarse, saying that money has been made easy!” This has happened every year in the last decade, yet the stock markets continue to boom, ”he explains.
Morgan states that share prices are a function of three factors – dividend yield, growth in earnings and valuation changes. Although the first two can be calculated, it is impossible to change the evaluation to capture people’s expressions.
Investors should therefore keep a margin of safety when investing, and this will make room for errors in forecasting.
Trust the power of compounding
Housel says investors make the mistake of underestimating the time required to earn in their favor before the odds of success. He feels that investors should trust the strength of compounding and understand that the longer the stock, the riskier it is.
The most important aspect of investment behavior
Housel says investors have no control over what the markets are going to do next, nor what the economy is going to do next. The only thing that can be controlled is one’s own behavior, which is the most important aspect of investment.
Howell states that modern-day investors are fortunate to live in an era where there are markets worldwide that are capable of generating large returns for the common people. “If investors are not taking advantage of these markets and not benefiting from them, this is often not because of what the market has done to them, but because they did it by themselves.”
Ultimately, it is worth keeping in mind that people do not get what they want or expect, they get what they deserve, he insists.
(Disclaimer: This article is based on Morgan Howell’s Presentation Behavioral Buys and Pitfalls at
#IndiaInvConf 2019 whose Video is available on YouTube)