Key to investing successfully – Protect yourself from your Opinions

I am reading this book Think Again by Adam Grant, an organizational psychologist at The Wharton School, and am loving it. As is evident from the book’s title, it’s about our ability to rethink and unlearn which is critical for success in a rapidly changing world. In the world of investing, it super-critical.

A couple of years after I started working, a LIC agent approached me and tried to convince me that I should take a life insurance cover. I was just 25 and I felt he was just trying to sell me a policy that I did not need. I had seen him in the office doing what he did and my guard was already up when he approached me. I had a poor opinion of insurance companies and agents and everything they stood for, playing on our fears of death. I did not take any insurance and justified by saying that the company already had us covered under group insurance which was in fact pretty good.

Now here is the catch. Even after I quit working at the company, at the age of 36, and was on my own with a family, I did not take any insurance worth mentioning. Many years later when I was closer to 50, I woke up and did something extremely stupid, bought ULIP; then stopped in 2 years later completely disgusted with the system and myself.

Finally, I bought a pure-term insurance policy directly. Why? Because I finally got it that what I needed was to protect my future income which is at risk because I am mortal. It does matter whether I have a tidy corpus or not. Thanks to everything I have done so far, I am and my family is deserving of the benefits of all the money I will earn when I am alive and working. And that is what the money I spend on buying the insurance is assuring me of. It is not an investment but it is a very sensible thing to spend money on. Obviously, my premium is hefty, but I do not grudge it.

I am not selling you insurance. I am pointing out how difficult it is to change our opinion on something that in hindsight seems obvious. I am lucky nothing bad happened to me in all the years I did not have adequate insurance and I did not pay the price of not changing my opinion. But things could have been different, bad.

Now, I find myself on the other side, the side of the insurance agent. And even though we are fiduciary RIAs not earning any commissions or brokerage, we are still selling something and that seems to reduce our ability to convince you to do what is good for you.

Why? Because you have an opinion about investing in stocks and mutual funds, how it should be done, about some specific stocks, about returns, about the industry, and so on. And they are simply that, opinions in most cases. Opinion is defined as a view or judgment formed about something, not necessarily based on fact or knowledge.

Looking at the definition you will feel opinions are easy to change. But we know they are not because opinions play a big role in our lives.

There are far too many things we are required to do that we cannot examine deeply and come to conclusions before we act. But to act we need to move, be moved and for that, we need to feel ‘comfortable enough’ that we are right. Our opinions provide us with this comfort. And that is what makes it difficult to change our opinions. Nobody wants to live with discomfort in so many areas of their lives.

The reason for writing this blog is not to burst your comfort bubble and open your eyes to how your live is driven by your opinions but to tell you that investing is an area far too important in your life to be rule by your opinions. That it is worthy of forming views and judgements that are based more and more on your knowledge and experience of investing. To approach is with a scientist mindset-to approach something with the curiosity of finding out how it works. And when you find new answers to rethink things - changing your opinions to something better. And not stopping there. Scientist mindset does not allow it. Nor does the market and the economy. Everything is dynamic. But to the scientist mindset it is more fun and excitement never a cause for anxiety. Investing is so important that you must approach it with this mindset. But we may not.

What are the other approaches to investing?

I liked how Adam Grant nails it in the title of his first chapter – A Preacher, a Prosecutor, a Politician, and a Scientist walked into your Mind. And we see these approaches every time we speak to people on investing and start explaining ‘our way of investing’.

The Preacher:

Rejects whatever we have to say and extols the virtues of what he thinks is a ‘better way of investing. I tell my colleagues not avoid getting into an argument but just ask them a few questions - how well are they faring in terms of returns they have earned, or how much of their saving they have invested using their current methods. And if that does not reveal something that should make them rethink then ask if there’s something they would like to see improve in their current way of investing.

The Prosecutor:

They are hell bent of debunking and discrediting whatever we have to say rather than discovering anything about it. It’s not that they have a different way of investing like a Preacher does, but they are convinced that investing is a gamble, too risky for them or whatever they believe in and they want to hold onto that by prosecuting anybody who claims differently. Examples of they say: “what you are doing is value investing and that doesn’t work”, “the quality companies that we are looking at will never be available at a reasonable price’, “you really can’t say what is the intrinsic value of a stock, it’s just another opinion”. And when we share some data to make a point, they simply reject it. Preachers when they feel challenged become Prosecutors.

The Politician:

We see this behaviour when we meet people in a group, even a group of two. While one of them is the decision maker the other person doesn’t really help evolve a better understanding. He just plays whatever he thinks will please the decision maker; which is exactly what politicians do-put on a show, play to the gallery.

We have all these three and the scientist in our heads and we let them play out in different situations. The trouble with the three P-approaches is that you don’t think better or rethink your opinions but let them drive your decisions. And if you are not getting the results you want from your investing, this may be the reason behind it.

So, what do I recommend? If you are convinced that when investing you want to protect yourself from your opinions and approach investing with a ‘scientist’ mindset read my book How the heck to Invest and Reach Nirvana; A 5-Step Journey to Financial Freedom.

But there is a chance you might think I wrote all this to sell my book. Well, let me make it easier for you. It is free to read "How the Heck to Invest and Reach Nirvana".

I enjoyed writing the book and so have others. But if you need some more convincing on why you should read the book.

PS: This is the second blog on the Key to Investing successfully. The first one was about Protecting yourself with a BS Detector which is a must-read in my opinion ????

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