Allow me to use this blog as a means to educate you on physiological traps build into the manner of my communication to my clients.
First one is the statement I say all the time to my clients. “I come up with stocks very infrequently”. This is a very dangerous but true statement. It is true because we have actually invested in just nine stocks over last four years. It is dangerous because, it gives you an impression that our stocks are of superior quality. Cialdini called it as “Power of Scarcity” – an important physiological tool of persuasion. Whatever is scarce is generally perceived to be of high value. However the truth is that the quality of our investments has nothing to do with frequency of their discovery. It is totally a function of my capability. Rather i would like to argue that I am not capable enough to come up with more opportunities. I hope to overcome this infirmity. But I will not compromise on my investment discipline to overcome this weakness simply because I invest my own money.
The second trap comes into play when I say “We outperformed Nifty/Sensex”. Should I compare my performance to Nifty and Sensex? Is it not that I am trying to anchor (remember “Power of Anchoring” from last communication) you to a really low benchmark? NO NO and NO. This has never been the intent. I use Nifty and Sensex to compare my performance because a) comparison to broader market indices gives a broad overview of the equity environment in which the returns have been generated and b) given the highly flexible investment strategy that I follow, there is no other suitable benchmark that can be consistently used for next 30 years. Consistency of benchmarks is of utmost importance to us. We will never change our benchmarks. It’s not a good policy to do so. In any case, you have my track record with you. You are completely free to compare it with benchmark of your choice to pronounce a judgment on it.
As Cialdini puts it, the greatest antidote of any physiological trap is the awareness of its presence. Let me assure you, that these physiological traps are totally unintended. Otherwise why will I give you the antidote free of cost?
That’s it for the quarter for my side.
“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1” – Warren Buffet
