Understand Investing by Understanding Yourself

• 09 Dec 2014
• Features

By Alex K Babu
Managing Director
Hedge equities Ltd 

Peter Drucker, widely regarded as the father of modern managementand preeminent business philosopher has often talked about the need to know aboutyour strengths and values. While he spoke from a business concept, the essenceof his teachings is true in any aspect of life including investing.

As per Peter Drucker, most people know what they are goodat, but usually they are wrong. In fact, he say people know WHAT THEY ARE NOTGOOD AT, and even there most people are more often wrong than right. And even theremost people are more often wrong than right. However, we can all perform onlyas per our strengths. There is only one way to find our strengths: a truthfulfeedback analysis. The essence of feedback analysis is quite simple: wheneverone makes a key decision, he writes down what he expects will happen. After theexpected time frame has elapsed, he matches the actual results to his expectations.The results are often quite surprising. Within a short period of practicingthis, one often gets a firm idea of where his strengths are – more importantly,it clearly shows them WHAT THEY Do or FAIL To Do that deprives them of true successcommensurate with their strengths. Peter Drucker   action conclusions that follow from thisfeedback analysis.

1. Concentrate on Your strengths
Although quite simple, results are magnified multifold once we realize our truestrengths and put our efforts to concentrate around our strengths.

2. Work on improving your strengths
Once the feedback analysis is put into place, each personwill have a clear visibility on which skills to acquire, refine or seek out.Often it will also show where existing skill or knowledge is inadequate. Inshort, one gets an idea of the gaps in one’s knowledge.

3. Identify where intellectual arrogance causes disablingignorance.
Far too many people, often exhibit a contemptuous aversionto knowledge in other areas or may often believe that being “bright” is asubstitute for knowing. Often the results of the feedback analysis clearlyidentify that the main reason for poor performance is the result of simple notknowing enough, or the result of being contemptuous of knowledge outside one’sown specialty.

4. Remedy your bad habits.
Essentially fixing the habits that impair your effectiveperformance. Or in investment parlance, one could say working of having the RIGHTTEMPERAMENT to deal with the vagaries of the investment cycles. The feedbackanalysis suggested by Drucker thus helps us clearly identify areas which we shouldstay away from (what WarrenBufftt means by avoiding those investments not withinour circle of competence). When we view from the angle of working to ourstrengths, we then realize that successful investments are not really “planned”.Instead, they are an outcome for those who are prepared for the opportunity becausethey know their strengths (and weaknesses), the way they work, and acting inconsort with ones values. As Drucker says, “knowing where one belongs makesordinary people into outstanding performers”.