Is ego & overconfidence eating into your portfolio?

Around a year ago I was having lunch with a hedge fund manager based in London. He was managing a few hundred million dollars and things were going pretty well for him. He had a great educational background and had worked with some of the best investment banks in the world before starting his own hedge fund.

Our discussions were interesting, however, he had never agreed with my belief in investing in value and following people like Warren Buffett. He started telling me how I should stop following ‘old fuddy-duddies’ like Warren Buffett and should move ahead with the times. These days it was all about advanced software and formulas that could give almost instant returns.
 
He was telling me how he was trading very aggressively and easily made a couple of million and how I should join him. I smiled and told him that I’m a simple person who doesn’t understand too well how exactly to predict stock trends in the next few hours and find it easier to look at the stock from business point of view instead. I like investing in businesses, which are, profitable and growing and don’t care too much about daily stock prices. Maybe I am not as intelligent as him and maybe I am old fashioned but it has worked well for me. (And certainly very well for Mr. Warren Buffett.)
 
I like sharing my ideas but don’t like imposing my ideas on anybody. It doesn’t make sense and is a waste of time. If somebody has decided that they know everything that is there to know, nobody can help them. The best way to learn and succeed is to know that we know nothing. There is an entire universe out there and still some of us think we can know everything.
 
In the world of investing a few people after making some money tend to imagine they are invincible and great. This is the worst thing that could happen to any investor, because it surely means that the investor will end up taking unnecessary risks and end up losing everything. An investor will end up taking loans in hopes of making higher returns, and forgetting the simple basics. You could be investing in stocks, mutual funds, commodities, real estate or anything else – arrogance, ego and overconfidence are very lethal.
 
Unfortunately last I heard from this hedge fund manager - his hedge fund had gone bust and things weren’t the same for him. I told him not to worry and tried to motivate and cheer him up. I hope and pray that he gets over what has happened. It is harder for somebody who has seen and been with money to go through such a phase, as they have become used to certain privileges - expensive dinners, fancy cars and costly houses.
 
Personally I don’t feel too comfortable with too much extravagance, because I always think like an investor. My thought process doesn’t see a lot of value in a fancy car or a designer suit. Thinking like an investor always is very important to bring in a sense of discipline and focus. Before reading balance sheets and investing you need to make sure your outlook and mindset is that of an investor.
 
Never let ego, arrogance and over-confidence control you - not just as an investor but also as a human being. You will never have internal peace if you are unable to look at everybody around you with love, compassion and understanding. Irrespective of who the person is he or she can teach you something you don’t know. I have learnt so much from people all around me and I wouldn’t have been able to learn all these wonderful things if I had not spoken to them with a smile.
 
Keep smiling and happy wealth creation!

- Yogesh Chabria

The author is an investor and bestselling author. His latest book Invest The Happionaire Way should hit bookshops near you soon. You can connect with him by visiting his blog at www.blog.happionaire.com and don’t forget to subscribe to his free newsletter. You can write to him at yogesh.chabria@moneycontrol.com

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