Owner mindset: A topic that I will be referring to in different posts from time to time. This goes deep into the philosophical aspect of investing, and you must have it in order to withstand the inevitable emotions of the market that you are not entirely immune from (despite being a rational investor).
Owner, Not Speculator
Whether you own 10 shares or 10,000, you need to have the same line of thinking: You are a business owner. Not a trader, not a speculator. Think of it this way: Let’s say you own a corner shop, with good revenue and profits. You like the product you are selling and take pride in being the business owner. Then some day, a random man comes to you and for whatever reason he tells you that your business is not worth much, since you had a cold last week and had to take a few days off to recover. We know that people get colds from time to time, and most likely they’re nothing serious and pass. Yet this man says that because you were recovering a few days, your corner shop is not worth walking into.
Obviously I’m referring to Mr. Market in the above example. Most of the time when you buy things for less than they’re worth, the company (or industry) is not very popular. When you’re faced with Mr. Markets irrationality, you must fight your psychology and ignore him. The cost is that you have to accept looking foolish in Mr. Market’s eyes and not care. The hard part for most of us is that intelligent investing goes somewhat against human nature. We’re hardwired to seek the approval of others, and we don’t want to stray far from the pack. The reasons are evolutionary: Thousands of years on the savannah, the lone hunter-gatherer did not survive very long. We still carry with us some primitive instincts.
To Serve, Not To Guide
An owner mindset will remind you that the market exists to serve you, not to guide you. Having it is absolutely key to controlling your emotions. Volatility and it’s psychological effects are the “entrance fee” to markets you have to pay in order to invest intelligently. There is not a single business in the world that does not, at some point, get a hiccup. A business that runs eternally without problems would be completely unnatural, as companies are run by people. Human beings have flaws, and sometimes we make mistakes. Making mistakes is not what matters. The only thing that matters is how we react to and learn from them.
The above is easy for anyone to comprehend. Yet, Mr. Market expects companies to be rational entities where the past can be extrapolated as data to predict the future. With the examples I gave above, you know that this expectation is illogical. Now you may ask, how do I know if an investment is worth my time? All you need to do first is address the mental models of circle of competence and the punch card. If these conditions are not met, don’t even bother with further research.
What do you think of owner mindset? Am I completely wrong or do you agree? Leave a comment down below and I’ll be sure to follow up!
-IGTSKasimir
Further Reading
Warren Buffett – The Partnership Days (1956 – 1969)
Philip A. Fisher – Lessons From The 15% Man
The Best of Ben Graham – Security Analysis
Phil Town – The Compounding River Guide
Margin of Safety – The Most Important Thing
Intelligent Investing = Thinking In Probabilities
The Emotional Stages of a Value Investor
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