“Stories are more powerful than statistics because they take less effort for your brain to contextualize complex issues” – Morgan Housel
The geopolitical tussle, tightening import-Export policy by major countries and combative monetary policy stance around the world beat down the world’s major indexes. At the same time, it is also beating investors’ hopes and dreams. Many first-generation investors started asking questions themselves about whether they did the right thing by investing? Though people say in investing world “I will be greedy when others are fearful”, but it’s not as easier as said and the reason for this is investors themselves start doubting their investment philosophy and goals. Such a flip in the economic environment started testing the temperament of the investors and they forgot that actual value is created by business and not by the stock market.
Investing is more about knowing our own nature and temperament than just mere modelling on spreadsheets and valuing businesses. Let me put this idea with an interesting story: “A scorpion and a frog meet on the bank of a babbling stream. It’s too treacherous to cross, so the scorpion nicely asks the frog to carry him across on its back. This makes the frog a little suspicious. It asks, “How do I know you won’t sting me?” The scorpion says, “Because if I do, I will die too.” That sound reasoning relaxes the frog’s nerves. So, he allows the scorpion to climb aboard, and they shove off across the flowing water. They get halfway across the stream and the scorpion stings the frog directly in the middle of his back. The frog feels the onset of the scorpion’s poison and starts to sink. He manages one dying breath: “Why?!” And the scorpion replies: “I can’t help it, it’s my nature…”[i]
If we put this story in the context of investing, during the bull market phase investors added so many scorpions in their portfolio, and they start showing their nature one’s tides (passive economy environment) turn the boat (Market). Post-Covid bull run, in the search of multi-bagger stock ideas, many first-generation investors added scorpions and now they start showing their nature. As an investor, one should stop experimenting with investment ideas which shows excellent return when things are going great. Because in long run such investment ideas dash down the portfolios as in scorpions’ story.
Let me end this article with a more straightforward word by Warren Buffet, – “You should invest in a business that even a fool can run because someday a fool will.”