Imposter Syndrome in the Stock Market
And How to Deal With It
I buy and share baskets of stocks called Coffee Cans. You can see the most up to date list of stocks and their performance here on my Scorecard.
Nothing screws over the average investor more than self doubt.
When it comes to the stock market, I believe that imposter feelings, the idea that one has only succeeded due to luck, arise because of a lack of confidence. It is easy to fall into a trap of thinking “there are so many institutions investing in the stock market today, so how can I possibly compete?”
This inferiority complex causes investors to do several self-destructive things, like discounting their own convictions, taking excessive risks, or imitating “so called professionals” they’ve heard on CNBC.
As a result, I suspect that most investors would have a much higher opinion of their investing abilities if they simply favored their own research.
The Independent Investor’s Edge
Doing your own research can lead to what I call the
Independent Investor's Edge: Building Conviction From Your Own Personal Experiences.
This edge is something each of us already has, and is not something we need to acquire by listening to some stock market guru, or a podcast.
There are some great sources that can help you and I, the independent investor, build conviction.
One source comes from simply investing in an industry you already work in or interact with. For example I invested in The Trade Desk and Pinterest because of my familiarity of the ad-tech industry. Another example is KKR: my interest in KKR first started while at Business School at INSEAD.
A second source is to capitalize on your own experiences as a customer. I was just talking to my wife about this. Her family is a big fan of Domino’s Pizza (Ticker: DPZ), but that wasn’t always the case. About 7 or 8 years ago, her cousin had ordered Domino’s for her son’s birthday party. At that time, my wife hated Domino’s, but she gave it a try. She was pleasantly surprised. “It wasn’t so bad,” she thought. A few weeks later, she decided to try it again. Her family also ended up liking the taste (and the price point). So she kept ordering it. Today, Domino’s has somehow become her family’s pizza of choice!
I found this story to be fascinating. Her family experienced the Domino’s turn-around first hand. Looking back at the stock, DPZ has been a 10 bagger since 2012. It’s pretty amazing to think that one could have made 10X their money by simply paying attention to the food ordered at a birthday party. Isn’t it?
Of course, I am not saying that you should go out and buy the stock of every product you like, but it wouldn’t be a bad idea to look into the companies who leave a positive impression on you, particularly if these companies sell mass-market products and services.
So What Can We Takeaway from This?
Pay Attention To The World
The industries that you, your friends or family work in, and the products or services they rely on, can be a great source of investment ideas.
When you come across an interesting product, look up the company that makes it, try to understand its business, and how it competes against others.
By being part of the industry, or by being a customer, you can be close to the situation and develop unique insights which could take months or even years for generalist investors to encounter. As a result, you can have first dibs at buying stocks way before Wall Street does.
Bet on your own Convictions
It isn’t enough to simply do the research. Once you have built conviction, you have to act on it. You have to make the buying decision. After all, what’s the point if you won’t act? This is not easy, especially at the beginning. But it is a hurdle we all must clear if we want to invest in individual stocks.
Keep Track
As I’ve said before, if you really want to get good at something, you need to be keeping score. I keep score on my Scorecard. This allows you to create a learning system where you can experiment and observe whether you did well. Then as a next step you can ask yourself, “what can I do to do better”? Then make changes to your process, conduct new experiments, re-evaluate your progress, and so on.
Give It Time
Investing is hard. It is also slow. So give it time.
The time between making a Buy, to getting to an investment result can take years. So give your ideas time to play themselves out. It is only after some meaningful amount of time has passed that you will learn whether you are a good investor.
In Conclusion
Independent research is a great way to combat self-doubt and to build conviction. One great way to do this is by investing in an industry you already work in or interact with. Another way is to capitalize on your own experiences as a customer. This may not seem like much, but I believe this deserves much more emphasis and attention than most people give it.
To become a better investor, take advantage of the Independent Investor’s Edge:
Pay attention to the world around you.
Don’t sell yourself short. Instead, build and bet on your own convictions.
Build a system to keep track of your investment performance. Iterate to improve upon it.
And last but not least, give this process some time. You will only discover whether you’re a good investor once you’ve been doing it for a little while.
I wish you good luck in your investment journey!
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