A Matter of Faith: The Role of Reason and Belief in Investing
September 8, 2011 1 Comment
“Can you guarantee it?” asked my South Indian friend Swami, when my broker Jigneshbhai asked him to hold on or add to his investments saying that markets will recover. Jigneshbhai said, “Boss, there are no guarantees, but they should recover eventually.”
Swami continued, “But when? For the last 4 years, the returns from my investment are less than 5% annually. I would have been better off with my fixed deposits. Today they give 9% at least. If you cannot give guarantees, what’s the use?”
This conversation was getting a bit heated. It always happens when it is about money. I continued sipping my hot coffee watching them talk.
Finally, Jigneshbhai got up in a rage, and asked, “You do your puja everyday Swami. Can your God guarantee that you will not die tomorrow?”
This was something Swami did not expect. This was about money, not God, he thought. “Don’t change topics”, he said in a disillusioned manner. Sensing that this was going awry, I intervened, and finally we changed topics and started talking about somewhat milder things like the weather, cricket and politics. Eventually a dissatisfied Swami left, as unhappy as he had come.
Jigneshbhai turned to me after Swami had left. “I will tell you boss, I have been in this profession for the past twenty years. Reason alone is not enough to invest. Beyond a point, you also need faith. And people like Swami have faith in everything else but the markets. Of course, markets do not cover themselves in glory to attract faith. But you must have some faith in the future. Who knows what will happen tomorrow. How can I give guarantees when God himself does not?”
He continued, still a bit angry. “You tell me, are there any guarantees that if you do your rituals, God will always oblige?” “Of course not”, I said nodding in agreement, hoping that this will cool him down. But he continued, “Similarly, there is a rationale that if you follow your investing ‘rituals’ well, the God of markets will oblige. But there are no guarantees.” “Right, makes sense”, I added, trying to fill the conversation up.
“And your friend Swami does not even follow the investing rituals.”, Jigneshbhai argued and continued, “Finally, at an individual level, it is a matter of faith.” I felt that I was hearing some words of wisdom from a true believer in markets.
I felt, perhaps, that is true in every sphere of life. Reason can get you ahead, but only so much. Like all other endeavors, reason is important as it sets goals, makes plans for you, helps you make the right choices and decisions. But there are no guarantees that it will work all the time. Beyond a point, and especially when the plans do not work as planned, finally, I guess, it is a matter of faith.