I have always believed that clear thinking is what propels one to reach their destination. It is a very underrated skill and not much is taught in school or in career on how to think clearly.
Investment is probably one place where you need to have amazing clarity of thought as it can wipe out all your investments or the returns would be dismal if you outsource this thinking to fund managers or analysts or mavericks who come on various channels peddling theories that have no basis and lacks clarity in thinking.
I have been saying that my current goal is to have a return of 1% per week on the money that I invest in markets. It seems a very simple goal but to arrive at this you need to have very clear thinking on what it means, and what you need to do to achieve this goal. It is an output of very clear thinking on why you want to be in markets and what you want to get out of markets.
And what better time to talk about it than now. We just witnessed the elections in India and if you have been following this we know what happened to markets. Money was made the day before the counting started and if you have understood what the exit polls were saying and you were invested in the market before this duration.
Awareness of opportunity cost drives clarity of thinking. Paul Graham had said
If you have any good ideas at all, you'll probably have more than one. There will always be opportunity cost. So you may as well learn to live with it, rather than letting it paralyze you.
It has an impact on everything we do daily and there is no better example of it than the area of investment. Now let’s look at the investment opportunity that was presented to all of us right before the elections.
We all knew that this was an opportunity that we needed to make the best use of
We knew the majority would be there, the question was how much
When do we exit from this positions
We have to always view Opportunity Cost through three lenses
- Compared with what?
- And then what?
- At the expense of that?
We have to, always ask this question and some of which I think about
- What is the cost of not running
- What is the cost of eating out or drinking
- What is the cost of not reading
- What is the cost of not writing
- What is the cost of not being part of the groups
- What is the cost of not looking inward
- What is the cost of not investing with only a short-term view
Nothing brings clarity to our thinking more than opportunity cost.