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The Equitymaster Research Digest

How to Overcome this Destructive Instinct and Beat Markets 5:1
Feb 3, 2017

If you want to understand the power of our ownership instinct, just observe a few tiny tots playing amongst themselves. Barely two or three years old, they are fiercely protective of their belongings. Anyone who dares come close to their toys will be met with deafening shrieks and flailing limbs.

Now, these little ones don't have a fully developed brain yet. They have very little sense of right and wrong. These violent reactions are totally instinctive. So this is innate. A trait, in fact, we're all born with.

The Instinct Mismatch

Our Stone Age forefathers did not live in an era of abundance. Resources were scarce and survival meant fighting for every ounce of food. Those who were passive or lacked the stomach for a fight were less likely to survive and therefore unattractive mates. This meant the genes for aggression and a fiercely protective attitude towards one's belongings were passed on to the next generation. And soon enough, almost all of humanity came to possess this rather mean ownership instinct.

The problem today is that this instinct does not serve us as well as it once did. It cannot differentiate between a survival activity and an investment activity. It's 'on' all the time, even while investing.

Have you ever had difficulty selling a stock even though it was the most logical thing to do? If you have, it was mostly your ownership instinct at play.

If I were to make a list of the investor's worst enemies, I would put the inability to sell - even when the facts scream you should - somewhere near the top.

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