Digital Quotient of an investor!
By: Vishal Mhaiskar
Tags: Digital, Equity, Wealth, Investment, India

If a bald person enters a room full of people, more often than not subconsciously will notice the other bald people in the room first… or notice a balding line of a person he’s speaking with. People typically gravitate towards what they are feeling or experiencing.

Let’s also note the current news cycle. Over the last few months, most channels have almost exclusively covered the high profile Rhea — Sushant case, where the news narrative has shifted from Sushant’s death to the Bollywood-drugs connection. Amidst all this, on 15th August 2020, India was supposed to launch the Corona vaccine. I wouldn’t be surprised if most people were not even aware of this. We live in an age where narrative drives the news flows. If we take a step back, there’s hardly any news that presents deeper insights or analysis. All news channels compete constantly to get your time and attention with catchy headlines.

You might ask what the link between these two examples and investing?

I believe we are now in a true information era, where the propensity of data can overwhelm you. The digital news today will offer all kinds of advice, EXCEPT this is not tailored to your needs but to your Greed and fear. And you will identify easily with news that supports the emotions you are going through! Clicks drive digital news, just like TRPs drive TV news and these clicks are based on what people ‘want’ to see, not what they ‘need’ to see.

There’s vast amount of data available at your fingertips. It doesn’t leave the time and space to clear your head and think. All the data propensity makes you anxious and pushes you towards committing an action to buy/sell a fund/stock. News today feed your greed or fear side of your thoughts. If you hear the same news again and again in different forms, the narrative can take the shape of truth/ fact in your subconscious. It becomes difficult for you to take a step back and look at other possibilities beyond the news.

From 1st week of April you would have seen multiple articles on investing in Gold, US Markets, redeeming midcap/small caps and moving to safer large caps. Articles on the imminent recession as bad as the great depression. Stories of how “smart HNI” investors are selling off mutual funds and buying stocks directly. (robinhood traders) etc. And the more you click and read, the more you tailor the newsfeed to your Greed and Fear. No-one said we will see a rally in midcap and smallcap in August. Hardly anyone spoke about the recovery seen in the performance of mutual funds. Many funds made a bottom in March and have recovered better than NIFTY in many cases. Imagine if you are an investor who sold off your midcap and smallcap funds and bought large cap, USD Funds or gold — because of the negative news about them back them. The same investor finds himself wondering again looking at news around recovery of Midcap and smallcaps today. I should admit, advisors too get bogged down with this velocity of data and news coming at them.

It’s time to go back to basics and write down on one piece of paper your risk profile and every time you see a disruption or high velocity of news, you keep re-reading this paper to remind you of your risk profile. Wealth creation is that simple, make a plan and stay on the journey long term.

How Digital Quotient of an investor affects his Investing quotient (EQ+IQ)?

I believe, you need a high degree of emotional quotient (EQ) in investing. Also implies you need a high level of patience by not getting emotionally affected by greed and fear. Imagine a situation that you are scared, you probably will connect with articles that are negative too. The search engine starts tailoring suggestions of articles which are along the same lines. You keep identifying with this premise you have in your head and you are seeking data / news article for validation. Once you validate it with 3–4 long articles, this feeling converts itself into a FACT. BUT If you are a person that searches — “How much to invest in recession”, “should I add if market corrects”… the type of articles the search engine will show will be a little different that the earlier investor. Same datasets on opposite side and this investor too is now armed with a FACT. Completely opposite views but everything else is still the same. But was it really you who did this? Or its sellers of “Greed and Fear” who did this to you?

You need to accept — Today people are killing or being killed based on FB posts, a small amount of people believed banging vessels kills corona, the examples are endless. These are normal gullible people maybe, but a very well written article does influence our thoughts and make us buy or sell financial instruments. (But is not tailored to your wealth goals)

My advice is, realize and spend some time in evaluating how your investment decisions are being influenced today. Meditate on your decisions done in the past. Revisit your discussions with yourself, advisors, family or friends and break down each conversation. See what advice / insight you identified with. Which friend or news / Youtube video influenced you more and IMPORTANTLY ask yourself if your risk taking ability is the same as theirs? Don’t copy what your friends are saying or news is saying, spend some time with yourself or with your advisor, and in time you will be happy with the returns you make — it could be more or less than your friends, but your confidence quotient in those decisions will be higher and these decisions are likely to make you stick with that investment in long run, which is the only thing that matters — Consistency. Doesn’t matter if you did 100% or 50% largecap, stick to what suits your Emotional quotient.

A higher IQ can hinder EQ growth at times. IQ is all about being quick. EQ is all about being patient. EQ needs to be higher for it can then direct the IQ to make correct deductions and most importantly teach patience to it. IQ helps in quick calculations but also at times makes one impatient. In this digital era, we need to know what news to take seriously and which to ignore.

So in the end what do I advice:

1. Focus on understanding your Digital clicks. Are you navigating through the internet or is the internet channeling your thoughts and decisions?

2. Spend time with yourself and your advisor and understand your risk profile

3. Stop focusing on timing and forecast of bull and bear markets

4. Stop focusing on what your friends make, your advisor makes or fund manager makes.

5. Accept that Quality should be measured over long periods and is never cheap. If the resilience of tree is measured on how well it weathered storms, even if bends by the wind. So will quality fund managers deliver negative returns at times

6. Focus on what your risk profile says on how much is your return expectation

7. Remember, Great wealth creation is slow. It needs patience and being consistent

8. Definition of patience means sitting through long time of underperformance and negative returns

9. Definition of consistent is — That you keep adding to your investments consistently in long periods of underperformance and negative returns

10. If patience allows, evaluate your portfolio every few years. Give it time to breathe and grow, while you concentrate only on your business / activity that would allow you to add more money.