The seven deadly sins of investing one must avoid
3 min read 20 Sep 2021, 12:03 AM ISTPutting off investing decisions for too long can be costly in the long run
PremiumIn Christianity, there are seven deadly sins, each of which is an extension of emotions we experience in everyday life. When we indulge too much in these emotions, it can lead to problems. Investing is all about managing emotions and having the right temperament for success. There are seven deadly sins to avoid when it comes to personal finance as well. They are as follows:
Lust: Lust is the sin that maps to excessive love of something. When thinking about our investments, sometimes we can fall too much in love with certain stocks. This applies to other assets as well. Unfortunately, no scrip or asset is the magic answer to investing success. That’s why taking things in moderation and understanding the counter argument for not investing in a security is very important.
Envy: Envy is all about wishing you had something that someone else is enjoying. In markets, this happens all the time. You go to a party and a friend tells you that they had invested in this unknown company and now they have made multi-bagger returns. Instantly you wish you had invested in the same thing. This emotion is dangerous because it can cause you to take unnecessary risks with your money and damage your finances.
Greed: Greed is all about wanting more than what you need or can use. Have you ever invested in something and seen it go up much more than you expected? Say, you invested in a stock, and it doubled in a few months’ time. It has most likely moved up way more than you originally expected. Do you still want it to go higher even if it is not justified? That’s greed talking.
Pride: Pride is a classic sign of overconfidence. It is dangerous to think you are invulnerable or that you know more than everyone else. You may have invested in something only to see it go down. The logical thing to do would be to evaluate if your original thesis was correct. But if you are still unwilling to change your mind because it would mean admitting that you were wrong, then oftentimes the market will come back with an answer that will beat that pride back into place.
Gluttony: Gluttony is the excess consumption of anything. In personal finance, excessive consumption of financial news and media can be detrimental to your wealth. While understanding what is happening in the market is vital, it is often the case that what you see on the news is just noise. The market goes up or comes down simply because there is a mismatch of buyers and sellers. But news channels and social media will try to convince you that there is some logic behind the latest market movement. What’s deadly about the excessive consumption of this noise is that it can make investors think extremely short term and trade in and out of investments rather than invest for the longer term.
Sloth: Sloth is another word for laziness or for avoiding doing something. Have you put off investing for retirement or for future financial goals? Have you put off rebalancing your portfolio to your asset allocation? You may feel it’s something you can take care of another day, but putting it off for too much time can be costly in the long run.
Wrath: The dictionary defines wrath as having a fit of anger, or seeking vengeance. Have you had this experience where you spend a lot of time doing your research and buying an asset, only to see its price go down? If your instinct has been to get angry and double down on your investment because the market is wrong, then that is wrath egging you on.
In investing, it always makes sense to take a step back and evaluate if you made a mistake.The market has no interest in whether you are right or wrong. Making sure you can make your decisions when cooler heads prevail is crucial to ensuring that you can make better decisions. I can’t put it better than Warren Buffett, who has said that temperament is more important than IQ when it comes to investment success.
Rishad Manekia is founder and managing director, Kairos Capital Pvt. Ltd.
