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The late Rakesh Jhunjhunwala was a much-admired investor. But often, we tend to attribute the successes of men like him, Warren Buffet and few others to elements of luck, personal talent, i.e. something in them that makes them successful.
We can end up with a concentrated portfolio of shaky stocks because we ignore the market conditions and feedback based on our biased self-attribution; i.e., we are talented enough to override what the market is telling us. In fact, great investors don’t bet against market conditions, they read them minutely and make decisions based on micro data. They see clearly the precausal conditions and the consequences of their actions.
Self-attribution is an important cognitive skill to develop. It is recognizing through practice and experience that a set of factors create actions that create results one has to deal with. When practiced correctly, it gives you a feeling of success and a feel for failure.
So, a student may know if I study these many hours with this level of concentration, I get these marks. But if I study less or more, my results drop or improve. They are able to test this process repeatedly and see that each time I keep the causal conditions the same, I get the same results.
This gives the student not only an understanding of their own mental capacity and stamina, but also an insight into what they need (quiet room, dedicated hours, concentrated mind, time of day, etc.) that allows this to work for them. They feel in control of their environment, and most importantly, they feel a sense of success that urges them forward.
Let’s say a parent intervenes and helps them with all their graded project submissions and they actually get a higher grade. In this case, they may gain marks, but they lack self-attribution. They do not have an accompanying conviction that they can get the grade they want by the actions they perform. This is results in a lack of self-confidence, a dependency on external factors and when they face a failure or make a mistake, they believe the external attributions are against them; i.e., they have no ‘luck’ on their side.
In your investment practice, this could be a dependency on tips, horoscopes, ‘gut instinct’, talent or just sheer luck. The dependency on these factors increases when you have not developed the ability to test your investment habits and see the results for yourself. If you’re entirely following someone’s advice, you cannot know what works, you’re not picking up the skill of reading the market data and applying it to your stocks. Worse, if your ‘luck’ has worked for you, there is a higher chance you are operating from self-attributing bias and ignoring inflationary and downward trends and company and financial sector reports. Even when others are jettisoning a stock, you may hold on to a precarious bet, leveraging out of a belief in being able to tide over it in the way that a motorcyclist believes he can get out of peak hour traffic jams because his skill as a rider is ‘special’. He may get away with it most of the time, but it’s still constantly risky and when a mistake happens, it could wreak fatal damage.
The point is not to always follow a trend or play it safe. If anything, your ability to read the nuances of market positions is enhanced by more careful attention to micro data. You can take more risks with greater conviction.
When self-attribution is used well, we are able to fine-tune our responses to the environment. Know how some people tell a joke so well that everyone always bursts out laughing at the punch line but for others among us, the same story falls flat? That’s self-attribution in operation: the comic listened for what works, what to emphasise so that it elicits a suitable response, and what gestures or facial expression, intonation creates the best result and practiced it until they got it right. In short, they read the room.
Rakesh Jhunjhunwala, famed for his sense of humour as much as for his portfolio, read the room like no other. That’s a skill worth emulating.
Be aware of your self-attribution bias
You may have a bias if:
1. Your wins are always due to your talent, but your losses are all ‘luck’ or ‘unfair'.
2. You reject any failure that requires you to take the blame, even partly.
3. You have an unrealistic optimism about ground conditions changing.
4. ‘Market conditions’ are a standard monster you erect to blame for poor investment choices.
5. You feel you never make mistakes and you lack the confidence that you will be able to correct them when you do.
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