Sins of Investing – Greed (Part 7)

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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.

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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

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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:

Lust | Pride | Sloth | Envy | Wrath | Gluttony

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I developed my passion for investment management especially equity research at a relatively young age. My investment journey began when I was 20, at a point in time where markets were still recovering from the Global Financial Crisis. My portfolio started from money I saved over the past years and through working during the holidays. I was fortunate to have a good friend with common investing mentality to began my journey towards value investing. To date, we still research and invest in companies together, discussing valuations and potential risks of a company. To date, I manage a fund with a value investing style. Positions are decided upon via a bottom-up approach or smart speculation (a term I came up with when buying a stock for quick profit due to a mismatch in prices in the market due to takeovers/selling of a subsidiary or associate). Apart from managing my own portfolio, I enjoy sharing my research with family and friends, seeking their opinions and views towards the stock. Reading Economics in London, I constantly keep up with the financial news in Singapore & Hong Kong. Despite my busy schedule, it has not stopped me from enjoying other aspects of life. I enjoy a variety of activities in whatever free time I may have – endurance running, marathons, traveling, fine dining, whiskey appreciation, fashion. Lastly, I enjoy meeting new people, discussing ideas and gaining new perspectives towards issues in the world.