Seven Habits of Highly Ineffective Investors

Inverting the perspective sometimes yields interesting insights. Here’s my attempt at an inverted mashup of Stephen Covey’s widely popular work. Stephen Covey died on 16July 2012.

Lack of Independence or Self-Mastery

Habit 1

Being ReactiveEquity investing is never risky. The risk does not come from the trade but from the trader. Reactive traders are influenced by the noise around them – hot tips, consensus, crowd behaviour, market gloom etc. All losses that are experienced by investors fall into three categories – direct control, indirect control or no control. Almost all the losses of highly ineffective investors fall in the direct control area. The boring but effective investors usually have control on their losses or experience losses due to events totally out of their control (9/11, Lehman Collapse, etc.)

Habit 2

Begin With No End In MindThe ineffective investors’ Covey urges them to visualise their funeral. What would their obituary read? Here lies an ineffective investor: he was a wayward arrow and never knew where he was headed (until his last journey!). Ineffective investors do not have a personal trading mission statement. Neither do they have personal trading heuristics or models and typically tend to get along with the flow. They don’t write down what their closing position should be before entering the trade.

Habit 3

Don’t Put First Things FirstIneffective investors do not prioritize and plan their tasks based on importance. They have no independent will and are generally incapable of thinking for themselves. If they read a research report or a stock story, they rush into buying or selling without spending enough time on self discovery and understanding ‘why’ they trade.

No Inter-dependence

Habit 4

Don’t Think Win-WinIt is not at all important for an ineffective investor to have a plan B and a pre-determined response to what one needs to do if the investment thesis does not work according to plan. A win-win thinker hedges his bets, uses stop losses and balances his portfolio wisely. Why bother with all this if your aim is to be as ineffective as possible? “What dork expects to win on a heads and win on a tails as well? Is it really possible?”, is something which a highly ineffective investor would like to know.

Habit 5

Seek First to be Understood, then UnderstandBragging rights are reserved for ineffective investors. There is a certain male bravado amongst this set. They unnecessarily keep staring at the screens and fantasise and want to talk about their exploits to anyone who would care to listen. The clinically precise and hermit-like reclusive effective investors tend to focus their energy in listening to what the market is telling them

Habit 6

No SynergyIneffective investors do not tap into the power of the network; they do not read extensively and they do not develop their lattice network of various mental models that are required for one to be effective in analysing investment options. Why waste time in reading books, investment blogs and other data reports when all one wants to be is ineffective at investing?

No Self-Renewal

Habit 7

Forget To Sharpen The SawSelf-rejuvenation and self-renewal are only meant for people who want to be effective. These losers seek a balance in their life, are not obsessed with the markets and are perfectly fine checking their portfolio values once a day (it at all). Ineffective investors are blunt instruments are would be the ones who’d typically lose sleep over their positions and want to keep tabs and follow the market even when they are on a vacation. Ineffective investors do not plan, practice and re-test their models.

About Kaushal

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