Wednesday, 4 September 2013

Why Doesn't Sachin Tendulkar & Roger Federer Retire?

With another new Test series coming up, one of the favourite questions for Indian sports journalists have started raising all over again is the question of Sachin Tendulkar's retirement. Roger Federer, another sporting legend, had an early exit from the currently ongoing US Open. So, instead of asking the usual question of is it time for them to retire, I was thinking about why it is so difficult for them (or similar others) to let go.

I have tried to answer my question from the Charlie Munger's theories of human misjudgement.
Here are the psychological tendencies/biases at work for these people that prevents them from being rational:
  • Psychological Denial - It is difficult for a great performer to admit that his performance has declined. That he does not make the cut purely on merit but more on the crutches of past performance.
  • Incentive caused bias - Huge endorsement contracts and money is at stake. Roughly, Federer earns over $65 million annually (from Forbes). Tendulkar has earned $18 million through his endorsements (from Forbes). Great incentive for not quitting, I would think!
  • Social Proof - Everyone around them say they are the greatest ever. Everyone says, form is temporary but class is permanent. Sachin can think that if Gavaskar could have played till 39-40 years, why can't I? Federer sees people like Hewitt, also a former world no 1 and same age as him, still playing, so why can't he?
  • Commitment & Consistency bias - They have both said multiple times, that they will get back their previous form. Also, that they will play till they "enjoy" playing. It is difficult to go back to that one fine morning and say, I am not enjoying playing anymore.
  •  Overoptimism tendency - Over reliance on their own individual abilities.They think with a little bit more practice they can get back their previous form.
  • Deprival super-reaction syndrome - There may be a conscious or sub-conscious fear in their minds that the adulation and fan-following that they get will wane once they are out of the spotlight.
So, now you ask, all this is fine, but what has all this got to do with investing?

Well, if people like Federer and Tendulkar are being fooled by psychology, just think what your brain is doing to you and your investments? How many stocks have you bought because someone else has it (social proof)? How many stocks are there in your portfolio for years but you are not able to sell because you think you will get back your price (anchoring) or the company will turn around (denial)? How many times have you chased a stock when it hit upper circuits because you just had to have it (deprival super-reaction syndrome?

The list goes on....

Be mindful of what your mind is doing to your portfolio!!

Enjoy investing!

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