Having covered Sin 6: Gluttony in the previous article, I will be covering on Greed in today’s article.
Sin 7: Greed – Excessive Desire
Greed is part of human nature.
Perhaps there is a group of people who are contented in life. However, the majority of us, I dare say we are greedy. Take money for example, can one have truly have enough of money? The dotcom boom in the late 1990s is the perfect example. Anyone pitching an investment with a ‘.com’ at the end of it, investors would jump at the opportunity. Investors got greedier and greedier, resulting in equities to be grossly overpriced.
It is greed that resulted in the failure to do proper due diligence. When faced with the choice – under time sensitive situations between making a quick buck and researching it throughly, most would pick the former. It is the hope of making a killing resulting in investors throwing all logic and caution to the wind. Such moves are similar to gambling and in the long run it would only result in losses.
Buy Low, Sell High
Investors are often worried that if they sell their position to realise current profits, they may miss out on further gains. It is such mentality that results in unrealised gains into realised losses with mean reversion. It is always important to remember the strategy of buying undervalued stocks and selling it when it reaches fair value. While this seems completely logical now, it is emotionally difficult to achieve. It is greed that keeps us from selling high, and fear that keeps us from buying low.
Be Fearful When Others Are Greedy and Greedy When Others Are Fearful
— Warren Buffett
A timeless quote that everyone has heard. However, how many have truly been able to do it? I have been put to the test on several occasions and have definitely felt this fear. I have considered whether I am making a wrong decision. Logically, we understand the rationale behind it. However, it is emotionally difficult. Additionally, do not just follow it blindly. It is about knowing when the general consensus is wrong.
Gluttony vs. Greed
What is the difference? That was something that I asked myself.
If I had to take a jab at this, I would say gluttony is a failure of self control whereas greed is a failure of consideration. For gluttony, it involves having too little a sense of self, while greed involves having too much. If one thinks about it, gluttony is the act of overindulgence – consuming more than the necessary amount. While for greed, it is the lack of generosity – hoarding for the sake of hoarding, when others could benefit from it.
With this, we have concluded with our 7 part series of Sins of Investing. We hope that you have enjoyed reading it as much as we have enjoyed writing it. For those who have not read the previous sins, we have attached the links as follows: