TIP012: PSYCHOLOGY AND STOCK INVESTING

W/ RAVEE MEHTA

 7 December 2014

Stock investing is not child’s play and the faster you understand how the game works, the better for you. Don’t ignore the role of psychology when it comes to stock investing because emotions often play a key role in investing and other financial matters. We often let our pride, ego and other prejudices overcome our logical reasoning and end-up making bad decisions. But, what if we were able to control these feelings and actually benefit from them? Well that’s where our guest, Ravee Mehta comes into the equation.

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IN THIS EPISODE, YOU’LL LEARN:

  • Who is Ravee Mehta and what is his book, The Emotional Intelligent Investor, about?
  • What is Benjamin Graham’s Mr. Market?
  • Are investors rational?
  • Why risks come from not knowing what you are doing?
  • Ask The Investors: How much of my portfolio should I invest in ETFs

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BOOKS AND RESOURCES

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BOOKS AND RESOURCES

CONNECT WITH STIG

CONNECT WITH PRESTON

CONNECT WITH RAVEE

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Preston Pysh 1:02
Welcome everybody to Episode 12 of The Investor’s Podcast! This is Preston Pysh. And I’m accompanied by my co-host, Stig Brodersen. And today we have a very exciting guest that’s going to be talking to us about the psychology of stock investing. Today’s guest is Ravee Mehta, and he’s the author of the book, The Emotionally Intelligent Investor. His book talks about how self-awareness, empathy, and intuition drive performance in your investments. And I’m sure that that’s something that everybody wants to learn more about. If you’re interested in learning more about Ravee’s incredible book, which Stig and I have both read, we’re going to have that link in the show notes. And you can also pull that up in our book club page that we have. So a little about Robbie–so he graduated summa cum laude from the Wharton School of Business, which everyone knows is the best business school in the entire world. And he’s worked on numerous multibillion-dollar hedge funds through his career to include Karsch Capital Management and also the Source Fund Management. So to put it lightly, we’re really thrilled to have him on the show today because he brings a wealth of information and has had the opportunity to learn from some of the best and brightest investors of all time. So Ravee, is there anything else you wanted to add or highlight that maybe that I missed?

Ravee Mehta 2:16
The only other thing is I started my own investment firm about a year and a half ago. It’s called an Nishkama Capital, nowhere near the multibillion dollar funds that I worked for before, but it’s been, been a very exciting time.

Preston Pysh 2:28
Well, that’s, that’s a great point ’cause what we can do is we’ll also add a link to your fund’s page. So if people are interested in maybe even investing in your fund, they can pull that up right through the show notes. So we’ll have that available as well.

Ravee Mehta 2:40
Thanks for having me.

Preston Pysh 2:41
So yeah, absolutely! Excited to have you. So Stig, why don’t you go ahead and ask the first question here for Ravee?

Stig Brodersen 2:48
Okay, Ravee! And also thank you so much for, for coming on the show. Okay, so Ravee, I know that you have worked with, with George Soros. What would you say is his two greatest strength as an investor?

Ravee Mehta 3:01
Yeah, first, let me, let me preface this by saying that when I was at Soros, I was in my mid 20s. And I was a relatively junior person there. So I didn’t have a, a ton of interaction with him directly. But, you know, I, I obviously worked with people that did have a lot of interaction with him. It was also a time, when he was focusing more on his philantrophy. But I, I would say his two greatest strengths were, were that one: you, you would always bet big, when he had conviction. So he was very good about sizing up his highest conviction ideas at the right time. And the other great thing about him was that I think he was very self-aware and was very good at listening to his in–intuition. You know, I, I heard a lot of stories about how, for example, he would change his mind on specific investments, when he had back pain. And people often experience actually physical symptoms, when their anxiety present. And investors can have anxiety, when their investments–they don’t really have a lot of conviction in the investments, so they–maybe they realize something fundamentally has changed, but they didn’t get out of the investment. And, and so he, he was very good at recognizing that his back pain was linked to those times, when his–when he should be changing his decision.

Preston Pysh 4:09
I, I think that’s fascinating because I know personally, there’s many times when you can’t put some type of quantitative numbers to maybe your decision or your thought process, and you’re really basing it on qualitative feel. And it’s amazing how often that is steered me personally in the right direction. And I’m sure that Ravee, you have the exact same experience. And I know Stig has the same experiences, where you necessarily can’t say that, “Oh, well, the value of something I calculated–that this is driving me down the path. It’s just totally off of feel. And you’re saying that that was one of Soro’s greatest strengths that you kind of saw? That’s pretty amazing.

Ravee Mehta 4:45
Yeah, yeah. So, you know, not only did he size his highest conviction ideas at the right time, but he will also get out of a lot of losing positions early; those were his two great strengths.

Preston Pysh 4:58
Yeah, that’s fascinating. Hey, so in the book, I love this discussion that you had provided on support levels and resistance levels. And I think that it’s something that a lot of people might not necessarily understand. Is that something that you could describe to our audience in a little bit more detail, so they understand what that’s all about?

Ravee Mehta 5:15
You know, there are, there are two types of investors. There are the kind that believe in technical analysis, and they, they mainly believe in it because they’ve seen it work. A lot of them don’t actually know why it works. And then, the second camp is the camp that just kind of equates technical analysis with, you know, picking stocks on a ouija board or something, or, you know, a lot like black magic. And because they just don’t understand why it would possibly work. I was before–I was in, I was in that second camp for a long time till I started, you know, seeing how technical analysis was actually was a helpful predictor of, of stock movements. And then, I tried to basically try to understand why. And it’s really rooted in behavioral finance. So he talked about support and resistance levels–was the two of the most important things in technical analysis. And they’re both linked in vehicle (*inaudible*) finance. So for example, the stock is at $100 for a long period of time, and then it goes down to $97. There’s a lot of, you know, there’s a lot of people that bought the stock around $100. And there’s a bias though a lot of people have that they don’t want to realize loss. And so, there’s a lot of people that are waiting for the stock to go back $100 before they’re going to sell. And so, that’s creative resistance level at $100.

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