Wednesday, June 12, 2013

Questioning our choice

One day, a calf needed to cross a virgin forest in order to return to its pasture. Being an irrational animal, it forged out a tortuous path full of bends, up and down hills.
The next day, a dog came by and used the same path to cross the forest. Next it was a sheep’s turn, the head of a flock which, upon finding the opening, led its companions through it.
Later, men began using the path: they bent down, deviating obstacles, complaining and cursing – and quite rightly so. But they did nothing to create a different route.
After so much use, in the end, the path became a trail along which poor animals toiled under heavy loads, being forced to go three hours to cover a distance which would normally take thirty minutes.
Many years passed and the trail became the main road of a village, and later the main avenue of a town. Everyone complained about the traffic, because the route it took was the worst possible one.
Meanwhile, the old and wise forest laughed, at seeing how men tend to blindly follow the way already open, without ever asking whether it really is the best choice..
(based on a traditional Malayalam story)

This story is enjoyable, and that is why I felt like sharing it here.
But relating its learning to the way we carry out our routine, I thought of some points to ponder:
Do we blindly follow what the people around us do?
Do we question the way we trade/invest?
Do we take time out for questioning our way of choice of trading/investing?

1 comment:

Rajesh Alawadhi said...

Dear Sir,
1 have been a big risk taker in my life and my profession demanded me to be more so it. Almost every major decision that I took personally, professionally and financially, was a risk in conventional wisdom. I would like to add a few lessons that I learnt from my experience to second the morale of the story posted by you.

a) There is nothing called risk in life. Risk is just a perception fed into our minds by others. The biggest risk lies in sleeping under a fan with your life hanging on the strength of a nut which may not have been tested to satisfaction, using LPG and driving a two wheeler but we fail to see the risk. Why ? Because others cannot. Almost everyone says stock market is risky, property investment is good least realizing the risks associated with property i.e. lack of buyers, tax burdens, black money, overinflated prices etc.

b) Taking a different path cannot be based on assumption that all the people using that path are incorrect. It is in fact most of the people tend to take a conventional path with designed least risk/reward ratio. They would continue to do so as the sheep did and continue to be a sheep in the end. Do not be in a hurry to make a new path, observe study, understand, analyze and then decide. Make your own path after doing your homework and that needs vision which can be developed with knowledge, reading and rational analysis.

c) It is not your decisions that put you in backseat but it is the same lack of decisions that puts one in difficult situation.

To sum up, even in the stock market most people go wrong by doing same things that others are doing. These things are very common and quite humorous.

a) Instead of analyzing the factors and then anticipating, they try to PREDICT where the market would head in a certain time frame.
b) They spent more time in justifying themselves about their prediction of the market instead of planning on what to do if that does not happen.
c) Most of the common people have common beliefs which are rarely put to test in real life. The moment such people enter the markets, their beliefs are instantly put to test and as expected, they are bound to fail.
d) We often see people obsessed with words like sure shot, 100% etc and beliefs like conviction, hope, optimism etc in the markets. They never back their convictions with faith in their analysis. They always fail to miss out the main ingredients of trading i.e. analysis, probability, position sizing ,capital management and most important of all, margin of error which is not catered for in their planning by commoners following a path which has been laid for them by others.