Why is there such an enormous focus on somehow figuring out the election results a few weeks in advance of actual event? I can understand the political parties themselves (secretly) wanting to know which way the winds are blowing, but I can't figure out the rest of the media frenzy. Maybe it's just habit, or maybe the hard commercial reality of needing something to fill up the gaps between the advertising. However, one group of people feel that they actually have a legitimate need to know are a subset of equity investors. But do they, actually, need to know? Is this the most important thing in investing?
You would have sometimes heard that success at investing is more a matter of temperament rather than of technique, skill or knowledge, or something like that. In fact, some time back, I read a book named 'How Children Succeed: Grit, Curiosity, and the Hidden Power of Character', by a researcher named Paul Tough. The book tries to shows how character was more important than intelligence in determining whether a child succeeds in life or not.
This idea is quite the opposite of the focus of academic performance that characterises our education system. Perhaps selection procedures of everything from the IITs and IIMs to the civil services should try and select for ability to overcome adversity, rather than focus on exams. That sounds hard to do, and probably is.
However, success in savings and investments over a lifetime also has some similarities to this. The first is that a set of different qualities is more important than intelligence. According to Tough, these include 'persistence, self-control, curiosity, conscientiousness, grit, and self-confidence. Economists refer to these as non-cognitive skills, psychologists call them personality traits, and the rest of us sometimes think of them as character.'
Investors often chase knowledge and skills. They tend to believe evaluating 20 different financial parameters for a 1000 companies will get you better returns than understanding just the basic facts about 50 stocks. Nothing could be from the truth. What is more important is the ability to keep calm, focus on basic principles, and not expect unrealistic outcomes.
Another principle that the book arrives at is that good habits and processes can lead to remarkable success. In investing, this is probably the most important. The final measure of investing success is not the rate of return that you get, but whether you are able to meet your life's financial goals all the way into retirement. For that to happen, the very first requirement is to save, save enough and start saving enough early. The arithmetic of compound investing is an absolute dictator, and gives outsized success to those who start saving as soon as they start their careers and always save a good proportion of their savings.
Unfortunately, this good habit and process is something that is hard to learn. It is a fact that when they start earning, most young people's savings habits are formed by tax-exemption rules. And what that teaches by default is either that one should put a certain sum of money in something like PPF in a hurry around Match 28th every year. In recent years, intensively marketed and dimly understood insurance products have also been added to the menu.
If savings and productive investment behaviour is to be learned, then it needs to become a habit, and that probably needs a combination of carrot and stick. Could that be taxes and tax exemption? Perhaps. Or it could be innate, or perhaps something one sees in one's environment. In any case, trying to study the teal leaves of unpredictable events is not part of the recipe.
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