What Do You Believe? Why?

 

 

ONE OF THE MOST important aspects of becoming a good investor is creating a model of the world around you. To do this, you must have the ability to make sense of incomplete and sometimes contradictory information.

This is not easy. It is often counterintuitive.

What seems like an obvious market-moving data point or   pieces of news is very often already reflect in prices. If I know this thing – because I found it through public sources – doesn’t everybody else already know it too? Well-known and widely understood information is almost always already reflected in market prices.

This is the key difference between investing and other pursuits, like politics, sports, or religion: The feedback loop in markets for mistakes is so much faster the anything else. If your fundamental belief system is wrong, if you rely on “facts” that turn out to be false, you typically find out sooner rather than later. These errors are expensive, too. If your fundamental beliefs are wrong, it will show up in your portfolio’s performance.

If you want to make fewer money mistakes and develop the right thought process for successful investing, ask yourself, “Why do I need to have an opinion on everything?” Why can’t we admit where we are ignorant and move on from there?

This is how a good investor thinks about the world.

“I don’t know” is a very powerful tool that will help keep you out of trouble a lot, if only you have enough courage to say it.

 ***

All good investors must constantly ask themselves these questions:

What do I know?

What do I believe in and why? 

How can I tell when I am wrong?

What will I do about it?

(Quoted from ‘How Not To Invest’ by Barry Ritholtz)

***

The real challenge today is to keep-up oneself knowledge base about once investment in capital market. How the dynamic nature of the market is affecting your investments? There are too many forces acting on every market idea and, on every business, which keeps the investors blind to their investments and their investment decisions.

So, be humble and let us try to understand our investment decisions best!

***