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Lessons from Charlie Munger-V

Apr 7, 2011

In the previous article, we had discussed how loving your stocks too much can distort your perception and in turn be a threat to stock investing. Today, we shall discuss the other extreme of the emotional spectrum: how feelings of dislike and hatred too can derail your investments.

Disliking and hating tendency

Take the recent Cricket World Cup. Rewind back to the semi-final match between India and Pakistan. Was it a cricket match? Or was it war? War it was! The high-voltage match that ended with India beating Pakistan saw our feelings of patriotism and national pride touch the sky. But it's not pride for India alone that makes us so jingoistic. There's also an intense hatred towards Pakistan that equally nourishes that feeling. So we get back to where we started- emotions and biases.

From the time we are born, we learn to dislike and hate the same way as we develop tendencies to like and love. The history of human evolution boasts of almost continuous wars. Neither religion, nor advancements in civil life have done much to change the basic savage instinct. And wars are not the only way in which hatreds find expression. In more sophisticated societies, hatreds and dislikes find expression in more non-lethal things such as elections, sports and even stock markets.

Charlie Munger has very aptly explained how the "disliking & hating tendency" acts as a conditioning device:

  • We ignore virtues in the object of dislike

  • We dislike people, products, and actions merely associated with the object of dislike

  • We even tend to distort other facts so as to justify our hatred.
Do you recall a promising stock that you had fallen for faltering miserably? There may have been some unfortunate event or probably a cyclical downturn. Maybe your timing wasn't right. Or maybe, the markets were just too pessimistic and overreacting at that moment. But your instinctive reaction could have been that of disappointment and anger. In your fury, you may have even decided never to put money in such a money-sucking monster.

This kind of biased approach to investing could be very detrimental to your stock portfolio. While negative events should be viewed diligently, you will be better off if you fairly consider the pros and cons of every situation. You never know, your blind dislike for a certain stock or sector could destroy a potential multibagger

To be continued...

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