In December 2020, India, against all odds, won a memorable Test series in Australia. In the second Test in Melbourne, Australia won the toss and batted first in the second Test in Melbourne. They were in trouble at 134/5 when their captain Tim Paine came in to bat. He was batting on 6 when his partner called for a tight single. An accurate delivery saw the wicketkeeper RISHABH PANTS Paine stretched to gain ground. The decision was left to the third umpire, who examined the various angles available more than once before arriving at his final decision of “Not Out.”
Social media was abuzz with comments, not just from cricket fans but also from former players. Most tweets were accompanied by screenshots showing the critical moment when the cards were played. Indian fans like me saw it clearly; Australian fans were convinced that Paine was safe. Each side was convinced of what it wanted to believe.
What explains the burning conviction felt by so many cricket fans that day?
As “Indian Test cricket fans” we wanted it to come out. We needed it to come out, so for us it came out. The closer something is to the core of our identitythe more it can distort our perceptions.
It’s not uncommon for topics of politics and religion to cause otherwise intelligent and pleasant people to break into incomprehensible rants. Take investing, for example, an activity whose measurable goal is to increase wealth and maximize the time you spend doing things you enjoy. The only thing that should matter is how much your style contributes to achieving that goal.
Because? investors Why do they go to such great lengths to convince others of the superiority of their chosen investment method? Even at the expense of saying that other methods are simply wrong? Because their investment method has become part of their identity.Different investors employ different styles:
Macro investors adjust equity allocations based on interest rates, currency strength, commodity prices and economic indicators.
Contrarian investors seek out mispriced stocks in out-of-favor sectors.
Quality investors focus on companies with consistently strong financials and growth.
Quantitative investors use factors such as momentum and volatility to systematically select stocks.
Traders rely on short-term technical patterns to make frequent trades.
Passive investors minimize decision making by using index funds.
Most styles deliver long-term results if followed with discipline, as asset prices typically rise over the long term. Problems arise when investors become too attached to one approach.
A critique of a investment style It seems like a personal attack. So smart people work twice as hard to reinforce their arguments to themselves and then to the world. But if it’s part of our identity, our ability to be objective about it is likely compromised. If we can’t objectively view a decision in a game that has no impact on our lives, we’re likely missing out on a lot more. For investment professionals, labels help differentiate themselves in a crowded field. Some use labels for marketing but stay flexible; others merge labels with their identity. Famed hedge fund manager Bill Ackman’s ill-fated public campaign against Herbalife showed the dangers of investing too much in one position.
Warren Buffett is an example of adaptability, having gone from being a bargain hunter to acquiring quality companies at reasonable prices. There is a clear difference between an asset manager who only uses one investment style as a marketing strategy and one who believes it is the only way to do it. The latter spends a lot of effort ridiculing other investment styles.
Retail investors have even fewer reasons to tie their identity to an investment style. How can you prevent your chosen investment style from becoming part of your identity?
To keep your Investment Identity little:
Watch for emotionally charged reactions to investment conversations. Are you evaluating objectively or seeking validation?
Study other styles to extract useful tools and principles.
Focus rebuttals on specific criticisms rather than broad defenses.
Periodically reevaluate your framework and adapt it as necessary.
Free your ego from your wallet. Observe dispassionately.
As Paul Graham advises, “The more labels you give yourself, the dumber they make you.” Avoid labels. Keep your investment identity small and your mind open. Your portfolio will thank you.
(The author is responsible for investment and research at Capitalmind. The recommendations, suggestions, views and opinions of the experts are his own and do not represent the views of the Economic Times)
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