Skin in the game matters.

Investing is probably the only vocation in which those without their skin in the game enjoy disproportionate influence. I am referring to the analysts. Men and women who sit on judgement on stocks and sectors, they aren’t allowed to invest in any of them. So, what judgements they pass on stocks hardly affects their wealth. Now, that creates a classic construct for self-indulgence and intellectual narcissism. The fact that their judgements can ruin stock prices gives them a false sense of power. The truth is that the track record of analysts is terrible. The same men asked the world to buy Indian infra stocks at peak valuations. They put out sell calls on HUL @ Rs.200 in 2007 and INFY at Rs.2400 in 2013. But, we are a forgetful society and the analysts are living off our lack of good memory. This probably is a good time to remind ourselves of two home truths. We have more skin in the game than analysts. Valuations seldom lie as much as analysts do. So, let’s do what valuations dictate and ignore these young men & women who don’t know what it takes to invest their money and make significant gains. Their judgements are paid for by someone whose interests they serve. Our interest is best served ignoring them.

How we invest during the phase of volatility decides how much we return during a phase of euphoria.

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