If herd mentality is such a “don’t” in investment, then where do we go from here? How should we really deal with such a situation?
What should be the kind of mentality one should have in investment? If we can’t follow the herd, whom should we follow?
There should be others – friends, leaders, groups who should lead or guide us. A model, a teacher, a mentor, or whoever that can help.
Well, friends can be helpful and groups too can be useful . They can accelerate the process of being proficient in investment or in any art for that matter.
But, first things first.
There is an absolute prerequisite in investment. Without this prerequisite I don’t see how anyone is able to move forward.
Without this prerequisite, we can hardly even talk of having somebody as model, guide, or teacher, let alone joining groups.
The prerequisite I refer to is the “ability or discipline of independent thinking,” or thinking on one’s own feet.
This needs a little explanation.
I say “ability” or “discipline”. By ability, we mean a quality or talent inherent, inborn or even developed but something that has already been internalized.
For example, one may not have the ability to speak well in the beginning, but by force of desire and determination, one can be a great orator.
That’s what happened to the great Greek orator Demosthenes who even started with a speech impediment and practiced with peebles in his mouth.
The realm of the arts are replete with examples of great achievers who started just the exact opposite of what they eventually became famous for.
Discipline, or self-discipline to be more precise, on the other hand, is a habit or customary action that one imbibes by force of will. We imbibe discipline by force of will.
Now, some people have inborn or innate ability to think independently. Lucky for them.
Most of humanity, of course are not. Most of humanity are followers, not leaders.
That this is true in investment as in any other area is validated by the tens of thousands or even millions who, time and again, get victimized by investment frauds of whatever type or nature.
This may not sound nice to hear but humans, like sheep, cattle or lemmings are hardwired in “herd mentality”.
In other words, herd mentality is our “default” thinking. And by default, it is something we need to change if such default set-up is not something we like.
Therefore, if one needs to move forward or go anywhere in investment, he needs to change the internal set-up of his thinking from herd mentality to “independent thinking”.
And what does independent thinking consist of?
First, it simply means regularly spending time thinking and reflecting about investment.
What are your goals in investment? Where do you currently stand in terms of proficiency? How proficient would you like yourself to be? What should you do in order to reach your desired level of proficiency?
It also means listening to one’s inner voice or preferably spending some time meditating.
But reflecting and thinking can often get boring or can lead to just plain daydreaming. This leads us to the next point.
Second, as thinking needs anchors and guideposts to keep us moving, we need to “study”. Books, magazines, e-books, blog articles – anything you can lay your hands on.
And you need not go elsewhere; the internet teems with millions of reading materials, some are for a price but most are free.
Come to think of it, “study” is imbedded in the very definition of what investment is. Benjamin Graham says that an investment is one which promises protection of the principal and an adequate return, after careful “study.”
Therefore, “ study” is an absolute part and parcel of what investment is.
This does not necessarily mean burning midnight candles every night, but it means devoting regular time to it. Regular time can mean anything from a few minutes daily to a couple of hours weekly or even fortnightly.
There are no hard and fast rules. The amount of study is dependent upon one’s actual needs and his desired level of proficiency.
But study is something one never skips if one is to attain any level of success in investment.
Thus, if you want to move forward in investment, you have to change your default setting from herd mentality to independent thinking.
And you instill independent thinking simply by devoting time for reflection and study.
It is that simple.