What I learned when I let go of a bad investment

When the value of my investment went below the minimum amount I had set for myself, I was unable to let go. I watched for almost a week as the value plummeted until I had lost almost $50. It may not seem like a lot of money to a lot of people, but for a student who is starting out in this world, I felt the loss. I wasted a lot of time begging the screen to show me an upward trend instead of taking action.

I have always prided myself in being aloof. Almost detached and unaffected by a lot of things that bother a lot of my peers. Yet, I attached a lot of value to an abstract asset. One that I had not held for a very long time.

A contradictory, disruptive, thought I keep having is that I have to get used to losing money in order to make it in the end. That I should have waited the momentary blip out. That I should have tolerated the discomfort of seeing my balance going down. How can I train myself to be a ruthless, within reason, risk-taker?

The “test your risk tolerance” quizzes show me that I am more conservative than I am risky. There is a reason that I do not read horoscopes. They shape me even if the rational side of me knows they are worded to apply to anyone. No offence to the believers. I regret taking those tests.

As an autodidact of stoicism, I have been trying to accept the things that I cannot control in order to achieve the greatest possible control over my emotions and thoughts in order to  survive this world. I had no idea a test of my impulses would come too soon.

 

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The art of thinking clearly

Reading The Art of Thinking Clearly: Better Thinking, Better Decisions was eye-opening for me in a lot of ways. I realised that it is absurd to try to rid myself of all kinds of emotions and impulses when making decisions. It is impossible to do that therefore chasing this obsession is futile. Emotion will always be the dominant part of my character. The best I can do is study stoicism.

I felt reprimanded after reading the first chapter. When I started investing, I had high hopes that my success rate would be quick and easy. That I was smart enough to succeed in this world. My arrogance has been knocked down a few notches after being reminded that I have “overestimated the probability of my success”. It was hard to read about the “cemetery”.  A place where failed investors who are just as hard-working and as ambitious as I am may end up regardless of how dedicated they may be.

The book is not as cynical as the previous paragraph makes it seem. It serves as a reminder to appreciate the successes that I have and to always remember that I have come far compared to how I was in the past. He calls to my attention the fact that the more successful people get, the more dissatisfied they are with what they have. As we succeed in life, we tend to compare ourselves to people who may be light years ahead of us and forget far we have come to achieve all that we have.

Additionally, I learned a lot about the human flaws and how we can live with them by just being aware that they exist. I have to have awareness that I am biased and fallible. I have to accept the fact that I am shaped by a lot of things out of my control, evolution, the way I grew up etc. It prompted me to borrow Daniel Kahneman, Paul Slovik and Amos Tvesrky’s Judgment under Uncertainty: Heuristics and Biases from the university library because it sparked a new interest on human behaviour.

What I loved about this book is that the author did not claim to have come to some conclusion on how we can better ourselves. I did not want to spoil this book so I barely scratched the  surface. There is more to learn. It is perfect for people who are obsessed with cognitive science too. Like I told my friends, this is not a self-help book!

 

Fear of being classified

I have been reading a lot about different types of investors, value investors, growth investors, income investors etc. They all have their merits; however, I have this itch inside me that does not want to be compartmentalised, classified and put into a small box that I cannot break free from. Is there a word for this?

I want to be a bit of everything. A combination of two or more things. Or have a strategy for each goal I have. However, many people (and by people, I mean the authors of the articles I read) tell me that I have to master one or two things instead of being mediocre doing 10 things. That I have to stick to one strategy, master it and that this will result in success. They make a lot of sense; however, I have this urge to rebel against everything they say.

A colleague once told me I would lose interest in art and culture once I started working and focusing on my engineering career. I make it a point to go to my favourite philosophy section every time I go to a book store. Moreover, my interests outside of university are far removed from engineering. I feel the need to prove him wrong.

I’m not completely stupid in the fact that I will completely ignore the advice. This is the beauty of the internet. I do not need to pay for university to learn from the wisdom of the world. The downside of the internet is there are a lot of articles for and against the same subject. For instance, one article may be titled “Reasons to go gluten-free” and another article may be titled “Why gluten is not the enemy”. What or whom do I believe?

I just believe these should not be rigid. If a strategy does not work for me I am not going to stick to it. Besides, there is a chance that through trial and error, I will find a strategy that works for me. Lady Luck, please be on my side.

A momentary panic

I was alarmed to see that the value of my investment had plummeted more than 3%. I was not ready for the feeling of distress and the immense temptation I had to sell my asset.

This impulse is intense. It is a constant nudge. An itch I am finding hard to ignore. However, since I am trying to be less rash when it comes to making decisions, I will wait until the value of my asset reaches the lower limit I have set for myself (I learned from my online class that this helps letting go of stock easier). I fear falling into the trap of attaching too much value to my stock to the point where I am unable to let it go.

I am aware that I may be responding to sporadic noise and not information that is impactful. However, because I have one asset, I am keeping a close eye on the security. Watching the daily fluctuations is a highly stressful situation. Despite this, I have no choise but to endure this until my portfolio is more diversified.

Another impulse I am experiencing is the urge to buy another stock to attempt to tip the scale into a more balance position. Where this illogical thought is coming from, I do not understand. As a way to deal with my impulses, like I said before, I have ordered a stock, which I have to cancel in a few hours.

As a way to learn more about impulses and control, I have decided to learn about making decisions under uncertainty. I have already borrowed Daniel Kahneman, Paul Slovik and Amos Tvesrky’s Judgment under Uncertainty: Heuristics and Biases from the university library. Hopefully knowing more about my flaws will help me be more reasonable in making decisions.

 

More kowledge, more confusion

“Information overload” is something most university students have experienced. Especially during those long research projects that drain the life out of them. I genuinely believe that a lot of information is making me stupider. Okay, that is incorrect. It delays my decision-making.

I was contemplating about how easy it was for people back then to make an investment. They probably had one trusted source of information. Therefore, they were more certain about the information they received. In this time of constant flow of information, we are disadvantaged. I am an avid reader and an enthusiastic student however I sometimes find myself uncertain about the accuracy of the information I am absorbing or if it has some bias. This applies heavily to information I look up on the internet. My naiveté may be projecting here and I should be more critical of the type of information I intake. Despite that, it is hard to filter out the noise from everything I read.

The more research I do, the more dazed I get. During the time I decided to buy a camera and have a hobby outside university, I was certain that I wanted to get a DSLR. However, since I was unsure about the brand to purchase, I went to my source of information (google). I looked up people who had  an idea of an appropriate camera to start with as a beginner. I was bombarded with comparisons of brands, pros and cons. Everything was attractive. I was probably drawn in by promotions too. My decision-making process about a simple camera took longer and eventually I settled for the camera I initially wanted.

I should have picked up a book on photography where I would not have been bombarded with a lot of advertisement. This is a valuable lesson. I have to figure out a way to learn more and avoid noise in a world where there is a cacophony of information.

Fixation

Fixation, for me, is when my mind anchors to an attractive stock from Company A and uses it as a scale to measure the worth of Company B. My judgement becomes distorted and biased and I cannot seem to research untouched by the impression Company A gave me. It seems that I have already made a choice before I have already gone through all the options I have. It’s an immense flaw in judgement that I would like to get rid of.

I have gone through the Australian Stock Exchange (ASX) website to compile all the health care stock that are listed on it in order to choose one that trumps all of them. I don’t know if this is the right way to do research, but I have yet to come across a website that mentions the research processes that experienced investors use to sort through the many companies they hear of.

I am going to deviate from the topic of this article and clarify that my goal, for the moment, is to try everything until I find a method that works for me. I want to be more fluid in learning and be able to abandon a strategy that does not work for me. I believe everyone should not to be too rigid with their plans. If something does not work, it is justified to try something new. Being obstinate may be a flaw in this world.

After compiling all these companies, I highlight the ones that seem most appropriate to me and focus on them. I visit to their websites and learn everything I can about them. (Honestly, it takes me a while to read about one company because I have to refer to my fundamental analysis notes repeatedly.) When I come across Company A, with its attractive financial statements, my mind fixates on it and even when I move on to Company B and attempt to be more rational in gauging its worth, Company A is still stuck on my mind. It’s like that prediction a psychic tells you that you try to rebel against but end up molding yourself around.

I hope with time I get better with compartmentalization and sorting the longer I do this. I may have to chase rationality throughout this process.