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Managing our behaviour – Lesson from a legendary IIM Ahmedabad marketing teacher!!

This week has been challenging for investors with constant flow of news about falling stock markets, raising crude oil prices, falling Indian Rupee and the stable interest rates etc. As reiterated last week by us here, 2018 continues to be volatile. The best thing for us to do as long-term investors, is to ignore the short-term noise and stay focused on the long-term goals.

While the logical part of our brain accepts the need to ignore short term signals, the emotional part is often in denial. This is wonderfully illustrated by Daniel Kahneman in his Nobel prize classic “Thinking Fast and Slow”. We are bombarded by news from social media, TV channels like CNBC, business newspapers, Whatsapp etc. How do we ignore all these short-term signals?

Today I would like to share a lesson from an IIM Ahmedabad professor. From personal experience, I can assure you that it is very useful. Harish Bhat, ex COO of Titan pays his tributes to his marketing guru – Prof Abhinandan Jain. Do read this moving note.

Prof Jain used to ask a simple question in class – “So?”It is the most powerful question we can ask!! Let us see why this is so relevant for us as Investors today.

Background

Prof Jain was a teacher for 44 years at IIM Ahmedabad and he retired last month after guiding 40+ batches of CEO’s, IIM Directors in Marketing. One of his most powerful lessons was to teach students to think things through and not to be a “lazy thinker”.

The IIMs follow the case study methodology of teaching. The students would be given notes for a case study (e.g. how a company had to address a demand problem) prior to the class. The students are expected to read the case study and come prepared with their insights.

Typically, the class would be a discussion with inputs and views from students rather than a teacher reading out notes. The professor is more a facilitator who guides and shapes the thinking rather than reading out notes.

The Power of “So What?”

Whenever a student used to give an insight, Prof. Jain used to typically ask “So?”. I had a teacher from IIM Ahmedabad who used to ask a similar question, but he was more generous – he used to ask two words!! – “So What?” Whenever you are tempted to arrive at a conclusion based on a data point this will tempt you to think further towards a logical conclusion.

Let me give an example. Try applying this question to some of the news triggers

  • Media and research analysts have opposite views – Morgan Stanley says that the Sensex will go to 42,000by Sept 19 while Goldman Sachs downgradesIndian Equities – So What?
  • The markets have fallen 10% in Sept 18. I have a notional loss of X lakhs – So What?
  • Crude oil prices have increased 15 $ in the last quarter – So What?
  • Rupee has depreciated 15% in the last quarter – So What?

This “So What” question will help us to think deeper than just reacting to the market movements.

  • Have we not seen crude oil price raises and the falling Indian Rupee before?
  • Have we not seen deep market corrections before?
  • Have we not seen market recover from the lows?
  • Have we not seen the Indian companies weathering these kind of storms before?
  • Have we not seen the Indian companies grow their earnings over the last many years?

You will see that the logical chain of thoughts for each one of us should be as follows:

  • Equity investments are a way to achieve long term goals (children’s education, retirement etc.). These are typically many years away
  • Equity returns in the long run are driven by earnings growth of underlying stocks which are recovering and remain positive for Indian equities (look at below chart for trends)
  • Equity investing will always have periods of volatility, like we are having now. We need to endure that to earn above average returns
  • Continuing to invest in volatile times is rewarding and stopping investments now reduces your long-term returns.

 We appreciate your patience in continuing your regular investments.  In fact, this is the time for long term investments which will pay handsome dividends in the future.  We would reiterate the importance of remaining invested. The bouts of volatility will cease after some time and the markets will move up from the current levels.  But you should have remained invested in order to take advantage of the future price increases.  Do remember that this mature investor behavior will give you the edge over other investors who are redeeming in panic. Correction is temporary, growth is permanent!!

When in doubt, always ask the magic question – So What? and stay calm and continue to invest!!

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