Once upon a time in the stock market, there were two people – let’s name them Ram & Shyam. They started their investment journeys together, with the hopes of enjoying their retirement with a healthy corpus. Ram was extremely intelligent whereas Shyam was an extremely hard worker, who understood the value of building good habits.
In the beginning, Ram was confident that his analytical ability of reading and understanding numbers, would give him an edge in his investment journey in the long run, whereas Shyam relied on some other virtues – patience, discipline, staying invested with consistency and straying away from temptation of alternate investments.
Ram was able to take quick decisions and profit off short term movements of the market. But at times, his decisions proved to be hasty, as he missed big moves. He also paid a significant portion of his gains as taxes & brokerage. Shyam, on the other hand, continued to invest, even when the markets temporarily underperformed for a couple of years. Short-term movements did not affect his habits of maintaining the discipline to stay invested.
Their retirement day finally arrived. According to you, whose portfolio did better? More often than not, the right answer is Shyam.
While high IQ and analytical skills do give investors an edge, they tend to make one overthink and over-analyze a situation, which leads to questionable decision making, which impacts portfolio performance in the long run. Good habits, on the other hand, tend to provide clarity in thought, as investors don’t get swayed and tend to keep their eyes on the long-term prize.