A reader says, “You often say we are the victims of our experiences. Can you please explain what you mean by this?” A discussion based on a recent interaction with a full-time stock trader.
We often equate experience with wisdom. Sometimes, it is accurate, and sometimes not. What is always true (in my “experience”!) is what we consider essential life lessons, are often the result of the sequence of events we encountered when we started.
For example, I am always thankful that when I started investing in equity via mutual funds, returns for more than five years from June 2008 to late 2013 were negative, and my portfolio was always in “red”. That taught me the nature of equity market returns and the importance of investing as much as possible when the market is sideways as long as our needs are far away.
Had I started my journey in a bull market, I would probably have had the wrong idea of how much “wealth” can be made in the long term and the wonders of “compounding”. See:
- Don’t get fooled: Mutual funds have no compounding benefit!
- Long-term investing in equity comes with no guarantees of success!
A few months ago, I sat next to a stock trader in a marriage. We never knew each other but got talking. I discovered he was a full-time trader from Mumbai with nearly 35 years of experience! He seemed like a character from the book Bulls, Bears and Other Beasts by Santosh Nair.
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I know at least three others with a similar profile. All of them have a trading service or teach others to trade. I respect all of them because they are extraordinarily humble about their ability to trade.
This man was quite different. He had no service and only offered suggestions to an inner circle. He was also supremely confident about his abilities. He told me stories of how people criticised him for his picks, which were all later proved wrong.
But surely, you must have gone wrong a few times. “Never”, he shot back confidently. When I pushed him, he said, “Yeah, once or twice, maybe, but no big deal. I recovered quickly.”
He was extremely confident about his ability to pick winners and offered to provide me with “tips” for free (which I politely refused).
It baffled me that an investor with no service to push or course to sell would be so confident of his ability. At the same time, professional traders I have met are humble and accept that things occasionally go wrong.
I could point out one key difference. This guy (from what I could infer) never lost big (whether he bet big or not is unknown). How much of this is due to skill and how much is due to luck is unknown.
The others I respect had all lost “everything” at least once in their journey. They did not run away, but they persevered and made it big. So they realised that the market does not dance to anyone’s tunes and that it is important to stay grounded.
It is possible that this wedding guest was lying through his teeth. I cannot help but think that, to some extent, he seems to be suffering from the hot hand fallacy (a term popularised by the movie The Big Short). An illusion that past wins will result in future wins.
It seems to be a case of when experience did not result in wisdom (at least in my opinion). A case of becoming a victim of his experience.
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