Imagine an investor like our friend Mr. Mehta – He is a long-term investor who buys undervalued stocks, and holds onto them throughout market cycles. He has been extremely successful in the past, and he is convinced that it’s the only way to make money from the markets. He refuses to believe in anything else.

Mrs. Sharma has a similar philosophy as Mr. Mehta, but with one major difference – when she is presented with new information, she recognises the need to adapt to a changing landscape. This doesn’t mean that she invests in areas she doesn’t understand (F&O for example), she just grasps a trend faster than her peers.

Out of the two, whom do you think was more likely to catch the growth in technology stocks over the last 5 years? The latter of course. What she displays is a trait called mental liquidity – the ability to pivot from an existing belief when presented with new information. It is very rare to find, and even more rare to cultivate and grow. It helps investors by:

  • Shifting Investment Strategies: Pivot to something else, if the current strategy isn’t working
  • Embracing different perspectives: You are more open to understanding different investment perspectives
  • Recognise Cognitive and Emotional Biases: Understanding your biases and investing patterns and finding a way to work on them in your investment journey

“A belief is not dangerous until it turns absolute – Dee Hock, founder of Visa”

To conclude, it is important to note – mental liquidity doesn’t mean to fully abandon one’s investment principles and put all their money in cryptocurrencies (Warning: Don’t do that, you will risk serious fluctuations of blood pressure). Instead, it involves expanding one’s horizons to the ever -changing investment landscape while retaining your core thesis, so that your portfolio continues to generate alpha over the long term.

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