From the school-going age, our parents and others around us have been telling us to develop some good habits: be respectful to elders, be physically clean, eat properly, get plenty of sleep, etc.
As we grew older and as life changed to creating progress for oneself and creating values, these changed to work hard, work smart, save money, be honest, etc.
When we mature into adults, more habits were sought to be instilled, such as exercise regularly, avoid eating junk food, take up a hobby, create a work-life balance, etc. These were life-enriching habits. We grew into each of these, did some, did not do many and became what we are today.
Now all of us have children and dutifully, we are trying to tell the same to them!
Why do we do this? What lies at the base of this? Author Thomas Curley has uncovered the underlying theme of habit formation and written extensively on it. Blogger and author James Clear, too, has extensive work on habits. They think correct habit formation lies at the root of all success. Curley has a book called Rich Habits, where he enumerates the habits and characteristics of successful people. It must have been fun, researching and writing that book!
Why am I talking about all this? Because the market is a place where our habits have the biggest reflection on how we fare! It decides whether we succeed or fail. Some people may wonder at that statement because they consider money, contacts, information, analytical skills and network to be the most important factors for success in the market.
But, as I have written many times, eventually everything ends up in the brain, where we process whatever information we have and come to a decision. So, perhaps a small detour to understand the working of the brain may be in order here!
The brain functions through what are known as synapses. These are electrical and chemical connections that brain cells establish to enable communication. Synapses are the latticework of the brain. They are very much like branches of a tree. So the speed of communication really depends on how swiftly the brain cells can get connected by a synapse. Multiple communications at the synapses reduce the gap between two or more brain cells and help them to grow closer together. This shortens the distance that neuro-chemicals need to travel between brain cells.
Habit formation is actually a way of creating these multiple communications between select brain cells. As a habit forms, communication becomes faster and faster, and it becomes difficult to break the synapse! Also, with the time element progressively reducing, the action triggered by the habit becomes automatic and then unconscious.
Two things emerge out of this. If we develop good habits, ones that are gainful for us, then those become automatic and unconscious. Equally, bad habits too can get developed and these too can become automatic and unconscious!
Secondly, because the synapses are now connecting so rapidly and smoothly, it becomes impossible to break!
Now see how this impacts what we do in the market. What are we told when we begin trading or investing? Choose good stocks. Buy at the correct price. Don’t chase. Sit on a winner. Exit a loser swiftly. Don’t average a loser. The first loss is the best loss.
These are all habits that you need to develop, and experienced people give you this advice all the time. Just like when we were growing up. This time, it is for our well-being and success in the market.
Instead, what do we do? We work on tips, have no idea what we are buying or selling, have no clue whether a stock is priced fairly or not. We chase down movers because we don’t want to miss a good thing. We book profits when we see a bit,
but we sit on losses as they continue to balloon out of hope that they will somehow get sorted. This is a bad habit formation!
We end up doing all the wrong things even after being told (many times!) about the good things! Over time, these start to become habits. And once they are habits, they are very difficult to break!
So, what is needed here? The first is unlearning. But we also need to know what we can replace them with. That’s easy. The difficult part is the unwinding of the ‘bad’ synaptic connections and the creation of ‘good’ synaptic connections. This takes time. And effort. And learning. And Patience. And persistence.
Notice that effort, patience, persistence, and learning are also habits! At the innermost level, it is just a way of rebuilding the synaptic connections in an enabling sort of way.
A good way to begin this process is to enroll in learning. Everyone believes he or she knows most of what is needed to know. But if that was so, why are you not succeeding? Obviously then, you don’t quite know what you think you know. A proper learning program will structure this subject in a correct manner, take you through the process and ensure that you create new positive and enabling habits that can then set you on the path of consistency and success.
So, here is to habit formation, the right way. Education. That is the new oil and God for the years ahead. And the beauty of it is, it is never going to run out! Fortunately, there are plenty of training opportunities available in the market.
The quality may vary, but availability is certainly there. There is a whole lot of stuff available on YouTube, some of which is actually good stuff.
Unfortunately, such an important area doesn’t yet appear to be recognized to be included in formal training (schools and colleges).
I take education in the market very seriously and devote myself to it. There are many others in the market doing some sincere work. One should look at what is available and decide what is appropriate for her. I have now spent 44 years in the market- and I know I would never have lasted this long had I not made learning a top priority from the early days of my market career. Take my word for it: it will certainly be one of the best things that you will ever do to improve your lot.