Everyone Else Is Doing It
Peer pressure is for kids, right?
When teenagers do it, we call it dumb.
But when we do it, we call it smart investing. Some even call it “research.”
Here are some real-life examples of adult peer pressure.
‘This billionaire just bought loads of crypto. He is not stupid. He didn’t become a billionaire by not knowing what he is doing (Well I digress that making money and managing money are two completely different things, but that’s a topic for another day). He surely knows his stuff.’
‘My boss bought this piece of land near the airport. It’s going up in price and I want a piece of that action.’
‘Options Trading is for sophisticated people. This guy takes a minimum of Rs.10 Crore and works with multi-millionaires.’
Look, I get it. Being in the herd (with people like us or at least who we believe are like us) feels like the safest place to be.
Except that this approach doesn’t work in the world of investing.
Nonetheless adults whether amateur, sophisticated or professional, we all fall for it. Because money is a deeply personal thing.
In a New York Times post, Author Carl Richards wrote, “Because it is so personal, it’s very hard to stay objective. We are just too close to it to think objectively. Doctors routinely avoid operating on or treating family members or close friends. After all, that emotional connection could very easily cloud their judgement should something go wrong and require a critical decision during a stressful situation.
When you think about what money represents, it’s easy to see that it’s emotionally charged. Money is more than spreadsheets. It’s about our most cherished dreams and often our greatest fears. With those stakes on the line, why is it so hard for us to recognize that we shouldn’t be operating on ourselves?”
But there is another issue – who? We still can’t figure out who is a real financial professional or even what the person really does.
To many, a broker is a real financial professional. To some, a banker is a real financial professional. To others, a Chartered Accountant is (though many amazing CAs themselves admit not knowing the field of personal finance and therefore a need for a real financial professional). Of late, I hear about some wealthy (and intelligent) people confusing an options trader with a real financial professional. If intelligent people cannot make out this distinction, who do you think really can?
And when we don’t invest enough time, attention, energy and cost in finding this one important professional for our financial lives, we set ourselves to behave like the herd.
Because in investing, there is nothing more seductive than the illusion that it’s possible to make quick money. Boat Loads of it. Especially when we think others are making it. Who doesn’t want this? Who wants to miss the boat? We soon want the recipe too. And thus, we actively look for ways to make quick and big money. We also look for predictions and people who can make all of this happen for us. Predictions appeal to our basic human nature because they create an illusion of certainty in an uncertain world. Not to mention the adult and social peer pressure is simply too hot to handle. All someone has to do at this point is to sow the seed of doubt in our heads. And soon we start wondering – Are we missing something? There must be something that others know. And we fall into the trap – I must do it because everyone else is doing it.
This brings me to an important point. We all have blind spots, and by definition, you can’t see your own. Let me repeat this again – You won’t be able to see yours.
One day, I was having a conversation with an investment banker of a global financial services firm. An experienced gentleman, Atul knew his way around money. If anyone knew how to invest, it was him. But he wanted the care and guidance of a real financial professional. I immediately knew why (he wanted someone), but I still asked him “Why do you really need help, Atul?”
He replied, “I could manage my own money except the I part. I can’t ever manage the I even if I wanted to.” He recognized that when it came to his own money, he had blind spots (like I have for my own). He recognized the value of having someone else help him see the mistakes he might make. We all need that someone who comes between us and our costly mistakes…that one who comes between us and stupidity…that one who comes between us and our (sometimes) irrational behaviour.
This is an important point to understand. You don’t hire a coach, a real financial professional or a consultant because you are stupid. You hire one because they are not you…and that means they will see things about you that you cannot see about yourself. And that, my friends, in and of itself, is invaluable.