The Girl Who Felt No Pain and the Indian Investor

This article was originally published in Livemint. Click here to read it

All of us hate pain. But what if you could live a life without pain?

Wouldn’t that be wonderful? 

Welcome to the world of Gabby Gingras – the girl who does not feel pain. 

Gabby was about a day old when a nurse pricked her heel to draw blood – something that makes most newborns howl. Gabby slept through it. 

When she was 3 years old, Gabby slipped and fell in the garage, banged her head on the kitchen floor and bumped her forehead against a bathroom door frame. But not once did she cry.

Gaby was born with a rare nerve disorder that prevents pain sensations from reaching her brain.

The inability to feel pain, which seemed like a blessing, actually turned out to be a curse. That’s because Gabby couldn’t tell when she was hurting herself.

When Gabby got her first tooth, she chewed her fingers so hard till it started to bleed. But she didn’t even notice. Once, she chewed on her tongue as if it was bubble gum. She had to spend several days in the hospital because her tongue was so swollen and couldn’t eat or drink anything. 

As a baby, Gabby just could not stop scratching and poking her eyes. It got so bad that the doctors temporarily sewed her eyelids off to avoid her from scratching. Today, because of that self inflicted damage, Gabby has lost her left eye and is almost blind. 

Paradox of Pain

Gabby’s story teaches us something very important. 

That pain is essential. Pain is a helpful teacher. Without pain, we don’t learn to avoid harm. We act recklessly without caution. With feedback from pain, we can rectify our actions. 

But what does this have to do with investing?

As equity investors, today we face a problem similar to that of Gaby. 

In order to avoid bad investment decisions with long-term negative consequences, quick feedback in the form of pain (sharp declines or poor returns) is necessary. 

But unfortunately, most investment decisions have a long, delayed feedback.

Sometimes what works in the short run, can end up doing badly over the long run and vice versa.  To really know if your investment decision or process works you will need to wait at least 5-10 years. 

The equity market’s inability to deliver immediate pain in the short term for bad decisions means some of our current investment choices which are performing well may actually be bad investments and can disappoint us in the long run.

Further, the lack of pain (read as absence of large temporary declines) over the last few years and the strong returns across market segments has resulted in a lot of overconfident investors, heightened return expectations, and a high level of risk-taking. 

The risk of making big investment mistakes now is very high as even bad decisions and excess risks are often rewarded in a bull market. 

Are you hurting yourself in the long term?

Here are a few big mistakes that you should avoid at the current juncture which may deceptively seem to be working in the short run.

Mistake 1: Excess equity allocation – there is an inherent temptation to significantly increase equity exposure beyond the originally planned equity allocation. 

Mistake 2: Going overboard on higher risk bets within equity portfolio – SME/Micro/Small Caps, Very Large Sector Bets, F&O trading, IPO listing gains etc 

Mistake 3: Borrowing (via loan) to invest/trade 

Gabby faces a daily risk of accidentally touching a hot dish during a meal. 

“Everything is very, very hot, so let it cool,” her mom reminds her as she serves dinner.

“I will, I will,” responds Gabby.

Looks like her mom’s advice is not just for her!