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Commentary

Practice and Application in the arena of Investing

Before the invention of the Printing Press, Education was privy of a select few for the cost of getting educated was an expensive affair and with much of the knowledge passed on through Oral or Scrolls made of papyrus and ones which required to be handled carefully and hence available to a select few.

The Printing Press changed all that as it made it easy for anyone to access the vast literature of knowledge that was the privy of the select few.  After Johannes Gutenberg invented the printing press, literacy levels increased and people started to challenge their beliefs about the world.

We spend more than a quarter of our life trying to get educated by formal methods of education. Once we complete formal education, we start acquiring practical education which we keep acquiring through the rest of the life.

One of the few fields of knowledge which is not really imparted at School / College level in one which actually holds the key to unlock our potential like no other – the Knowledge of Investing. Success in ability to invest right can unlock wealth like no other avenue of work can.

In the pre-internet era, it was literally impossible to learn the intricacies of investing for there were very few a book that could be easily acquired by common folks or experts we could come in touch with personally. Much of the learning was due to being in the right place, Mumbai in India for example or being in the right network.

Internet changed things like the Printing Press did Centuries ago – it democratized and freed education from the clutches of the select few to literally everyone who had any interest.

In recent times, with other avenues of investing being under pressure, the business of investing in the stock markets seems to be the only way out. This has meant mushrooming of teaching / training business – whether be it of the 1 hour variety or the 1 month course.

While there now plenty of resources – both paid and free available to learn more, that hasn’t meant much has changed. We still continue to see investors rushing in at peaks and rushing out at bottoms regardless of how many books and videos and podcasts of Behavioral Scientists they may have read.

As someone once said, the toughest thing to learn is our own nature when we face hurdles we aren’t prepared for, we fold up pretty quick.

From Blogs to Academic Papers to Books, there are a lot of resources available for free.  But then again, reading is just one part of the equation, it’s the application that counts and here, regardless of the amount of reading most of us do, we are barely able to lift ourselves to not do things that we know can be harmful for us.

There aren’t many such mistakes that we can find without it already being found and written about and yet, when we make the same mistake, we feel that the whole world had conspired against us to bring us down to our knees.

Last week, one of the leading brokerage houses and one which runs everything other than pure advisory faced the heat on twitter due to their Buy recommendation on one stock that turned out to be toast.

While they over the year come out with hundreds of reports, the failure of one stock was all it took for many to assume that their research was crap.

A few months back, when another stock – Vakrangee started to fall drastically, the company that faced heat was a fund that had invested in this company and while the fund did make a quick exit well before the exit door got locked, this did not stop the twitter mob from ganging up on them.

And just a month or so back, a famous fund manager was facing the heat for having been hit with losses and since there is no data out there to validate our beliefs, we extrapolated his letter to his investors to believe that something had really gone wrong.

Research has shown countless times that Reward doesn’t come without an amount of Risk. As long as one is rewarded, everything is fine but the moment the risk that enabled the reward in the first place starts to show its face, all hell breaks loose.

Reading Howard Marks on the relationship between Reward and Risk is easy but not enough. It’s how you act when you go through the Risky (which is showcased by Draw-downs) that really shows the mettle.

In our formal education system, we choose a stream post the 10th Standard and this stream literally defines what we do for the next 35 year. Investing is not much different – you choose a philosophy that appeals to you and all you can do is keep adding evidence that can add value to our beliefs.

One way to learn is to apply our learning’s and learn from the outcomes even though this could in itself lead to other biases. Theory and Practicals go hand in hand during college, investing should be no different.

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