What is beginner's luck ?
Wikipedia defines it as -
“Beginner's luck refers to the supposed phenomenon of novices experiencing disproportionate frequency of success or succeeding against an expert in a given activity.
Parents often advise their children to stay away from gambling by warning us - “initially you will win, but you will start loosing as soon as you are addicted to it”.
We come across this phenomenon when we try a new sport or an activity. Have you heard people say “exceptionally good for the first time”, that’s beginner’s luck for you.
Beginner's luck in investing
Does beginner’s luck has an effect in our investing journey ?
Well, I find a lot of people who made great money in the first year of their investing and freshers in the stock market brag about how successful they already are...
Would you amount that to luck?
Beginners luck is nothing but lack of anchoring bias. what happens with season investors is that they tend to get attached or anchored to a price. If you have seen a company trading at Rs 5, it's very difficult for you to pay 800 for the same company even if the performance has improved proportionately. This is called price anchoring.
Whereas, a newbie does not suffer from price anchoring since he doesn't know the history of the stock price movement. This in taking investing decisions without any anchoring bias. Thus, the superior performance is due to lack of price anchoring and not "Luck"
Think about it ...
How many times have you missed buying a great stock simply because it was trading 5% above your comfortable price. Now compare your action with a beginner, who would have simply bought the stock.
Getting your Beginner's luck back
Some investors don't look at the price at all before making their buying decision, this simple practice you will get your beginners luck back. We overestimate the control we have over our mind. If we look at the price, it's bound to have an effect on us.
The smartest people in the world are the ones who are aware of their limitations. We should accept the fact that prices have a sedating effect and avoiding them totally is the only solution.
P.S. - I am still struggling to implement what i just preached !
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