The investor's chief problem—and even his worst enemy—is likely to be himself." – Benjamin Graham.
If one wonders why Benjamin Graham said the investor is his enemy, then all one must do is look at investor behaviour. Most enter the market with the idea of becoming rich overnight, which is an unlikely outcome, yet plenty fall for ads that promise to double investor money.
Why do people fall for get-rich-quick schemes despite painful investing experiences? Well, in the words of Sir John Templeton –?this time, it's different. These four words say it all. So let me ask, "What have we learnt from these Global Financial crises?"?
Nothing! Zilch! Look at the market today, and you will find stratospheric valuations, unfair business practices, frauds, scams and more. In every crisis, people become incredibly cautious, vowing never to repeat their mistakes.?
Yet, a few days later, the same investing patterns are repeated, such as:
Not learning from mistakes: When scars heal, memories fade. Moreover, every day, a new set of eager new investors without the same experiences as the veteran investors join the market -willing to learn the same lessons anew. Mistakes are GEMS one must learn from – yet very few remember the lessons losses teach them.
Today will be a lucky day: Many investors invest in the stock market believing that day is different and will surely turn lucky. But, unfortunately, every day, investors brush away the learnings from past mistakes, forgetting that even during crises, they could gain and not suffer losses. Markets turn volatile for several reasons, and 'luck' is not one of those reasons.?
Hindsight is 20/20:?Uncertain economic times often prompt investors to sell their shares or to wait with planned investments considering that some of the most important stock market indexes fell markedly during the pandemic. The markets fell sharply but also rose rapidly, leaving investors feeling foolish about their actions and decisions in hindsight. That's why hindsight is always 20/20, as your mistakes become clear.?
Doing the same thing again: Habits are so ingrained that changing them is difficult. As a result, many fall back on their typical behaviour despite lessons learned in the past. For instance, as soon as the Russia-Ukraine war began and markets fell, investors were back to making the same mistakes again, even though they knew there would be periods of pain as rising inflation would create issues.??
But that's where informed, knowledgeable, and patient investors differ. Investors who know how to read the signs, study the changes, and then decide would behave differently. They would learn from their mistakes and create a well-diversified portfolio that helps them build wealth despite rising inflation and market volatility. They say, "The rear view is always smaller than the view ahead".
Sanjeev Anand, Wholetime Director and Head of Business Excellence, Research & Ranking