You have recently earned money or you wish you had NOT SOLD those shares in a panic?

Well blame it on the amygdala in your brain? Difficult to pronounce? well, don’t bother. See what it does.

Not long ago we were hunters gatherers and we still have that kind of response in our skull. Yes I guess it takes a long time to grow out of it, but let us make an attempt.

In the plains of the forest..you saw an animal from far and it was coming in your direction (did you know that we cannot estimate the speed of FAST MOVING BIG OBJECTS LIKE a train?). You were not sure whether it was a lion, or a deer. So you did the best possible thing – climbed up a tree. It turned out to be a deer.

It did not matter. Your friend who also climbed up with you said “better safe than sorry”. If it were a lion, we would have been eaten up.

So a guy or a girl who interpreted risk wrongly, became a snack. A person who interpreted it very conservatively, lived. Remember the genes running in you was the COWARD – and hence you carry his or her genes. Over the decades or centuries these ‘coward’ genes were told “better safe than sorry”.

We still believe this.

So assume that the Sensex is now at 35000 and you are invested in the sensex. Five states go to the poll, and BJP loses all the four states. The market falls by 20% and comes down to 28000. You panic. You sell all your positions.

The market goes down to 27000. You rejoice. You tell your friend…”Better safe than sorry”. So good that I sold out ENTIRELY (alive or dead is an all or non question, is it not?).

Your friend nods wisely.  He kicks himself for not selling.

One week later the market is at 36000. No clue why. Your friends tell you “market has already discounted the losses” or that “in the general elections people will vote for Namo” or some such shit.

Largely selling out everything at 28000 was not a sensible thing. Which means “better safe than sorry” does not look right NOW. It sounds odd.

You realize that the human mind did a “fight or flight” very well. Maybe you could do a short term prediction well. Maybe you could be wrong there too. However the ‘result bias’ made you over-confident. It means you thought something will happen and that happened. However, that happening could have been a result of some other events over which you have (had) no control. We discount that. We suffer ‘over-confidence’ bias.

In investing we have to be far more worried about being wrong and less about being correct. We need to understand that we are biased. We need to understand that it is not an “all or none” like life and death. So if you have a portfolio of Rs. 100 in equity, and you are SURE about a result, take chance on Rs. 50. You can do a “some or none”.

In the longer run, your short term interpretation does not matter. Even macros do not matter. However some of these incidents and accidents give you a trading opportunity. Take it.

Over the past 3-4 years I have dramatically increased my income by including a big ‘delivery based trading’ in my portfolio. I used to do it earlier too, but this time there is a full time person who is doing that. Yes I have bought some shit where I did not use stop loss (the investor hangover) but over all I am thrilled with the returns.

Yes I realize I am biased – having an adviser/broker helps. I know I am paying a big huge brokerage. However, my view is simpler – the brokerage vs my net increase in the portfolio (annual) is so much favoring appreciation that I will have it that way ONLY.

Yes “Better safe than sorry” does not work in investing especially if you are a record keeping investor….