Consistency in Investing

Market analysis is not easy. Few cardinal sins in markets revolve around having a pre-conceived notion, acting on it in advance, and then doubling down even when wrong.

The biggest problem is that no one really knows when they are right or wrong especially a person who is obsessed with markets. This is because such a person might consider different exit approaches based on different analysis techniques to justify whether to stay in a trade or to exit. This would lead to a late exit, just in time for the market to switch the direction. This switch might push that same person to again assume that his/her original bias was right and then stay with the trade for a long time.

This kind of behaviour happens often and result, many market participants lose money till two things happen:

1. They realize that short-term investment is a losing proposition and they buy and hold, in which case they are ultimately bailed out by the market. However, that could also be a losing approach if the underlying equity goes down to zero. Mostly works with index funds.

2. They become so good that the investment process becomes simple and repeatable

The term, simple is beautiful, has a lot of weight. Not because investing is simple but because investing is complex and a simple approach repeated multiple times with consistent risk management can improve the odds of success because of the law of large numbers in probability.

Investing is all about probability and having consistency in investing helps realize the impact of probability. So the key is to identify an approach with an edge and then mechanically repeat it without any emotions. If things don’t go according to plan for some time, objectively evaluate and enhance the underlying methodology to keep increasing the edge. Also, if new insights come to the front, evaluate before embedding and repeat.