Why you should keep your Investing Identity small
This is a reproduction of my article in The Economic Times, 18-Aug-2024
Have you experienced being 100% unquestioningly sure about something, only to later have doubts?
In December 2020, India, against all odds, won a memorable test series in Australia. On Boxing Day, in the 2nd test in Melbourne, Australia won the toss and batted first. 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 throw saw wicketkeeper Rishabh Pant whip off the bails, with Paine stretching to make his ground. The decision went up to the third umpire, who looked at the various available angles more than a few times before arriving at his eventual ‘Not Out’ decision.
Social media was buzzing with commentary, not just from cricket fans but ex-players as well. Most tweets were accompanied by screengrabs showing the critical moment of the bails getting disturbed.
Indian fans like me saw it was clearly out; Australian fans were adamant Paine was safe. Each side was convinced of what they wanted to believe.
What explains the burning conviction so many cricket fans felt that day?
As “India Test cricket fans,” we wanted it to be out. We needed it to be out, so, for us, it was out.
The closer something is to the core of our identity, the more it can distort our perceptions.
No wonder issues of politics and religion get intelligent and perfectly likeable people ranting incomprehensibly. If we can’t objectively view a decision in a game that has no impact on our lives, chances are we’re missing a lot more.
Take investing—an endeavour with a measurable objective of growing wealth while maximising time doing things you enjoy. All that should matter is to what extent your style helps achieve that objective.
Why do investors try so hard to convince others of the superiority of their chosen investment method? Even at the expense of saying other methods are plain wrong? Because their investment method has become part of their identity.
Different Investors employ various styles:
Most styles find success over the long term if followed with discipline, as asset prices generally rise long-term. Problems arise when investors become too attached to one approach.
A critique of an investment style feels like a personal attack. So, intelligent people work doubly hard to bolster their arguments to themselves and then to the world.
Recommended by LinkedIn
But if it is part of our identity, we’re pretty likely compromised in our ability to be objective about it.
For investment professionals, labels help differentiate in a crowded field. Some use labels for marketing but stay flexible; others fuse labels into their identity. Renowned hedge fund manager Bill Ackman’s ill-fated public campaign against Herbalife showcased the dangers of overinvesting in a position.
Warren Buffett exemplifies adaptability, evolving from a bargain hunter of cigar-butt companies to acquiring quality companies at reasonable prices.
You can tell the difference between an asset manager who only uses an investment style as a marketing strategy versus one who believes it is the only way. The latter spends a lot of effort deriding other investment styles.
Retail investors have even less reason to tie identities to an investment style. How do you prevent your chosen investment style from becoming part of your identity?
To keep your investing identity small:
Watch for emotionally charged reactions to investment discussions. Are you evaluating objectively or seeking validation?
Study other styles to extract useful tools and principles.
Focus rebuttals on specific critiques rather than broad defences.
Regularly reassess your framework. Adapt as needed.
Untether your ego from your portfolio. Observe dispassionately.
As Paul Graham wisely advises,
The more labels you have for yourself, the dumber they make you.
Avoid labels. Keep your investing identity small and your mind open. Your portfolio will thank you.
(The author is Investments & Head of Research at Capitalmind. Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)