Published on: 11 Jan, 2019

Any activity which entails making a call on the future is as much about managing emotions as it is about rational analysis. Investing therefore is always and everywhere a dance between these two elements – reason & emotion. We find that spirituality (i.e. reducing clutter in our lives, increasing focus on deep work, meditating, actively dealing with emotions) makes it easier to balance these two facets of the human mind.

“I see all this potential, and I see it squandered. God damn it, an entire generation pumping gas, waiting tables – slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our great war is a spiritual war… Our great depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars, but we won’t. We’re slowly learning that fact. And we’re very, very pissed off.”Tyler Durden in the movie ‘Fight Club’ (1999) [underling is ours]

Spirituality balances the emotional and the rational
Whilst investing we have to make choices from a sea of possibilities. To make these decisions we usually have data on hand to analyse. And then we have to make a probabilistic call about the future which is as much emotional as it is rational. It is impossible to make a decision which is just based on numbers because for tomorrow’s world there we have no numbers, no “future facts”.

For example, when you see the sunset from a beach shack in Goa, part of you absorbs the facts regarding the natural phenomenon (time, temperature, the colour of the water, etc.). But another part of you appreciates the beauty of the spectacle and loves the changing mood of the day as night falls on the beach.

Similarly, in our professional lives too we react to most events (the performance of my portfolio, my bonus, the financial statements of a company that I have invested in, etc.) at both a factual/rational level and at an emotional level. Our academic and professional training, for the most part, is geared to help us deal only with our rational response to such stimuli.

Our decisions therefore have to balance the emotional and the rational. Spirituality helps with that balance by preventing our emotions from completely overtaking our decision making. In high stress situation, spirituality helps us deal with anxiety and, specifically, preventing anxiety from paralysing our thinking. My friend Anupam Gupta and I have written a column for The Ken on this subject – click here for the same: https://the-ken.com/story/the-spirituality-of-simplicity/. Some of the concepts from this column are discussed below.

Three areas where a spiritual approach helps
Dealing with clutter: Our manic obsession with buying things we don’t need has cluttered our physical spaces with useless items. And mentally, we are no better off, with the clutter of distractions from social media to the Bloomberg terminal when we know we have a one-hour deadline. Then there’s the clutter of fruitless relationships and the time we spend with people that draw down our energy reserves. The more you pack into your life/day, the greater the risk that you suffer from cognitive overload; your intellectual abilities are then compromised.

The spiritual approach to this is to place greater value on the well-being of our inner self, prioritizing those possessions and relationships that truly matter to you. It’s a philosophy that has been espoused repeatedly over the ages. Chuck Palahniuk famously wrote, “The things you own ending up owning you”. Stoicism, a school of Ancient Greek philosophy, speaks of frugality. And there’s scientific evidence to highlight the importance of what really moves the needle with regards to our well-being – meaningful relationships.

The Harvard Study of Adult Development – one of the world’s longest studies of adult life, spanning nearly 80 years – has thrown up some startling findings. Robert Waldinger, director of the study, summarises these findings as follows: “The surprising finding is that our relationships and how happy we are in our relationships has a powerful influence on our health. Taking care of your body is important, but tending to your relationships is a form of self-care too. That, I think, is the revelation.” (Source: https://news.harvard.edu/gazette/story/2017/04/over-nearly-80-years-harvard-study-has-been-showing-how-to-live-a-healthy-and-happy-life/)

Actively dealing with emotions: “Men are not afraid of things, but of how they view them,” the Greek philosopher Epictetus said centuries ago. We have to deal with our fears and our anxieties in a constructive, practical, clear-headed manner. For example, if as an equity analyst, I am anxious about my portfolio’s exposure to the Pharma sector, I needs to get to the bottom of this anxiety. Is it because I don’t understand the chemistry underpinning these company’s products? Or is it because I haven’t spent enough time understanding the sector?

Ray Dalio says in his book ‘Principles: Life and Work’ that “The most valuable habit I’ve acquired is using pain to trigger quality reflections. If you can acquire this habit, you will learn what causes you pain and what you can do about it, and it will have an enormous effect on your effectiveness.”

Achieving deep focus: Achieving peak performance is pure joy; it also involves deep, almost extreme focus and overcoming huge challenges. From intense physical training to long hours of focused work, almost any goal that’s worth achieving will require inhuman effort.

In the end, hitting this peak is immensely rewarding. In our experience, the work we put into researching a company requires deep focus—and it is not always rewarding (if it was then everybody in the world would slogging away doing extensive research on companies). While we spend hours analysing annual reports and travelling to gather primary data, the market might just not care for our effort.

For many years, the stock price of that company might not go anywhere. This is the pain and self-doubt that we have to endure. But when one of our investments proves us right, our reward is more than just the profits we make—it’s also the emotional payoff that comes from having weathered the pain and reaching our goal.

Investment implications
1. Balancing the emotional and the rational is most critical when a watershed event (eg. a stunning General Election result) or a crisis (eg. a major terrorist atrocity involving a high profile target) takes place. There is a high chance that in such circumstances the stockmarket will react emotionally (as investors’ emotions will trump over their reason). Share price overreaction in such circumstances is almost inevitable. If we are able to stay calm in such situations, we will be able to spot opportunities others can’t.
2. The same point is applicable in the case of company-specific news – shockingly good or bad results are likely to lead to share price overreaction. Investors who stay calm in such situations can profit.
3. Ray Dalio says that meditation helps him stay calm and think clearly under pressure. Jason Voss, another successful investor, says in his book ‘The Intuitive Investor’ that “Meditation is a natural state of mind that occurs when the egoic mind is diminished or turned off.” According to Voss, “egoic mind means the state of mind where a sense of “I”, or a sense of separateness from the interconnectedness of the universe exists.” From an investor’s perspective, the benefits of meditation, according to Voss are that allows you “access to creativity, intuition and wealth manifestation. Exploration of this topic opens up an entirely new world, one rich with skills for making you richer.” In other words, by subduing your ego and your sense of self, meditation allows more creative thoughts to bubble up to the forefront of your mind.
4. Dealing with management teams and especially with overbearing promoters is as much an exercise in managing ones emotions as it is about understanding the company’s fundamentals. It is exactly in such circumstances that our ability to strike a balance between the fundamentals of the company and the personality of the promoter comes into play. The latter cannot be allowed to override the former even if the promoter is our best friend, or more likely, a client of ours.
5. Getting rid of distractions at work (such as newsfeeds, networking events, long meetings) helps reduce mental clutter, improves clarity of thought and helps one make more balanced decisions.

If you want to read our other published material, please visit https://marcellus.in/pms-investment-blog/

Saurabh Mukherjea is the author of “The Unusual Billionaires” and “Coffee Can Investing: the Low Risk Route to Stupendous Wealth”.

Note: the above material is neither investment research, nor investment advice. Marcellus does not seek payment for or business from this email in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services and as an Investment Advisor.

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