Blame your losses on greed

shailesh agarwal (professional accountant)   (7642 Points)

25 January 2009  

 Investor Survey: Blame your losses on greed (9th January, 2009)


"We are all born brave, trusting and greedy, and most of us remain greed," said the American journalist and author, Mignon McLaughlin. How right he was, considering that greed, and more of it, has brought us to where we are now. All markets, be it real estate, stocks, or commodities, saw their fortunes soar during a large part of this decade. While easy and cheap money was the biggest factor driving these assets, human greed was the lubricant. This is what we believe.

And this is what Equitymaster subscribers and visitors also believe. A question we asked through the recently concluded Investor Survey, was - "Who is to blame for the losses you may have incurred on your stock portfolio?"

The choices we put were - greed of global financial firms, greed to earn quick returns, the US, and brokers. An overwhelming 62.8% of the respondents voted for the first two factors - greed of global financial firms and greed to earn quick returns. Interestingly, the ‘broker’ community was blamed by the least number of voters (3.8%).


Investor Survey: Who is to blame for the losses you may have incurred on your stock portfolio?
Source: Equitymaster Investor Survey (Dec. 2008)

As indicated above, we second the voters’ opinion that greed has been the key reason behind the bursting of all the previous bubbles across asset classes. This time too, it was no different. But putting the blame squarely on the (US) financial firms would be an incorrect analysis. After all, these firms in no way coerced us into investing in equity markets when valuations at most companies were running at multi year highs.

As around 28% of the respondents correctly pointed out, a part of the problem was of our own making and it is this tendency that one should keep in check if one has to avoid similar losses in the future. If one cannot remember anything about when to sell or stop buying, he/she should at least remember to be fearful when others are greedy and greedy when others are fearful.

Now, given the pain that investors are feeling currently, will ‘greed’ that created so much money in the first place vanish anytime soon?

Not till we remain truly ‘human’. The inherent nature of the human being to speculate will never die. Greed will come back. And irrational expectations from money, stocks, bonds, gold, commodities etc. will again find their place under the sun.

The imperative for you, the long-term investor, is to arm yourselves against the hubris that too much of money creates. The idea is to stay away from greed and get over the fear factor. Invest within your means. Keep saving - and investing. When the cycle turns, and it will, you will be glad to have pulled the trigger.