“The investor’s chief problem—and even his worst enemy—is likely to be himself.” – Benjamin Graham Recently, I have been reading a book on behavioural investing by James Montier. The book gives a lot of insights into the behavioural mistakes that most investors make. It also argues that successful investing a a lot of about following a rational process of investing. It is lot less about having an accurate model that forecasts future. In fact, we can not control the outcome of any investment, what we can certainly control is the process of investing.
The below table has been inspired by the James Montier book. Few important points:
- Good investment process does not guarantee investment success because market can remain lower for longer. if the market does not rise for a long period of time, even the best managed funds might not deliver good return. However, in such a scenario, a poor investment process will be under severe loss.
- Bad investment process will inevitably lead to bad investment performance over long-term. One can invest large lump sump amount in single stock, therby, ignoring time diversification, portfolio diversification. Most of the time, such a strategy will be a big failure but sometimes it may make money. Nevertheless, such an approach must be avoided at all time.
- Follow a good investment process, outcome will take care of itself. The best advise for an investor will be to keep on investing systematically, making a diversified portfolio either through careful stock picking or through better performing mutual funds. Give the necessary time to your investments to compound and don’t look to sell until you need the money or market is prohibitively expensive (NIFTY PE>=22).
