'Derived' comments on investing

Investing is more about character than talent.

Someone said this and raised the hopes of thousands of people with two digit IQs to dream of big buck. Clearly the statement above does not imply that having low IQ has any particular advantage. However, it also implies that off the chart IQ is not the only thing that determines your long term success. Your character has a part of play and albeit an important one.

The whole bust that happened was like thousands of extremely smart MBAs playing poker with blind bets. And with complex derivatives, the structure of second (and nth) order products became so complex and tiered that the blindfold just kept on getting thicker and thicker. In such a blind situation, IQ counted for nothing other than being able to comprehend those products that lesser mortals like me have trouble making any sense of. Well, enough of pointing follies of the super smart bunch [don’t we all just love that ;-)], as that is not the point here.

Most of us judge the stocks the way we judge people or vice-versa. Traders are like people who have short term memory and can only remember the last encounter with a person, good or bad. They keep marking people up or down fast, going long (becoming friends) or short (making enemies) fickle-mindedly. Even with this approach sometimes such people end up winners for the simple reason that they get lucky. And that is the problem; there is just too much riding on luck for them.

Value investors on the other hand are like people who can separate behaviors from people. They look at people as potential and gauge if they would be able to take care of their negative behaviors in time. More often than not, they are placing their bets on a stabilized viewpoint. The difference between the traders and investors is about time frame and context. Traders have no allegiances other than their immediate gains (friends for benefit); investors forge ties with worthy stocks.

Time has a way of leveling things out and sooner or later, having a sound character pays off in investing and otherwise.

Disclaimer: Most or all of what is said above is my interpretation of stuff that I have read on investment. Follow it at your own risk. Claiming that my investment track record is horrible would be a gross understatement; so much so that I am the benchmark of lousy investing in my circle. In the pink of my short investing career, I have seen an unrealized gain of 20% and from then on it has been a journey downhill with my losses snowballing.

Also, contrary to what I wrote above seemingly making investing superior to trading, I think the times now are for trading. Book your profits and enter a position again if needed. Swings are giving ample opportunities to enter markets at any levels.

Comments (0)