The Ownership Choice

rightwisconcin.com

23 Jews were killed in Iran on Asura day in 1839 only because some people thought a Jewish women washing her hands in a dogs blood to cure herself of skin disease was making fun of the martyrdom of Husyn. The idea of Asura is to commemorate the sacrifice of Husyn and is definitely not sacrificing others.

Yual Noah Harari describes this in his book as a matter of choice:

When you inflict sufferings on others

“Either the story is true or I am a cruel villain”

Similarly when I inflict suffering on my self, there is a choice:

“Either the story is true or I am a fool”

As human beings don’t like to admit themselves as either fools or villain, they choose to believe that their story is true.

Most of the human life decisions can be slotted in these 2 boxes.

As Yual describes elsewhere in his book, if you buy a second hand fiat for 2000USD and it breaks down, you can just junk it but if you a Ferrari for 200,000 USD you need to go around talking about it to justify your decision.

Financial advisors and fund managers definitely relate to this.

Clients will come down hard when an advisor/fund manager decision goes wrong leading to under-performance, even if its in the short-run.

However when they have personally bought a stock, they are not just happy to stick to the decision, even though they lost money in the short-run, but are even willing to expand their holding.

How engaged one is to the decision thus impacts how an individual will react to the downside of the decision.

In behavioral science this is know as choice-supportive bias.

Individuals tend to downplay the faults of the choice that they make versus ascribing new negative faults to the option that they ignored.

There are important lesson for advisors as well as investors here:

  1. Risk is part of the risk-reward payoff whosoever makes the decision; just because the payoff was calculated doesn’t mean-risk is taken care of; 
  2. Risk is not only real-it plays off at some point in time-you got to prepare yourself for that.
  3. The key is engagement with the decision, which means:
  4. Did I understand the product, process, philosophy, 
  5. The inherent risks related to where I am in the market/economy/earnings cycle; 
  6. Am I just driven by short-term performance ignoring the short-term pain
  7. Pain is part of Patience-since 1914 when Dow was 66 points, the world has seen 2 world wars; 4-5 major recessions including 1929; 1997; 2008; 9/11, US war on terror etc., but still Dow has gone to 26000 points;

If you can be as patient with your Fund Manager as you are with your own decisions, your patience will pay-off

  • Essential is to have a written thesis prior to investing; unless that thesis has changed adversely, you need not change your path-whether managed by an FM or yourself

Own Your Decision & Just Stay the Course

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