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!

7 comments:

  1. very nice article Abhishek...i really liked it.

    ReplyDelete
  2. Not linked to investing still conveying the message on psychological factors...really good post...

    I would like to ask you a question..markets are going down..bank stocks are down by a huge percentage...any plans of shopping in the current scenario

    ReplyDelete
    Replies
    1. I would not hazard to buy financials now. The interest rate scenario is too volatile. If rates harden, banks will be in a lot of trouble (they are already in a lot of trouble, but it would increase). So, I am staying clear of buying financials for the moment.

      Delete
  3. Not sure if this has any investing parallels but I think the very great sportsman are also driven to perform at above normal levels by a fierce inner belief of their abilities. So even when age catches up with them that mental attitude doesn't fade away that easily.

    ReplyDelete
  4. Abhishek ji:

    I have this one stock in my portfolio .. which reports good numbers and according to me is a value buy but the stock price is stagnant.. can you shed some light .. with your thoughts about Jayant Agro..
    Company : Jayant Agro Organics: CMP: 78 MCap: 116cr
    7 yrs 600% increase in profits and 400% increase in sales..
    =================
    Consolidated Sales/NP numbers.
    March 2007 Sales 462.49Cr Net Profit: 6.76Cr
    March 2008 Sales 605.96Cr Net Profit: 9.51Cr
    March 2009 Sales 875.86Cr Net Profit 7.49Cr
    March 2010 Sales 904.01Cr Net Profit: 12.47Cr
    March 2011 Sales 1,175.26Cr Net Profit: 24.92Cr
    March 2012 Sales 1,832.26Cr Net Profit: 31.35Cr
    March 2013 Sales 1,624Cr Net Profit: 36.24Cr
    =================
    India produces 80% of world wide castor seeds and Jayant is the largest processor of castor seeds in India since 2004 as per Solvent Extractor Association (SEA of India) Jayant has bought Gujarat Agro Industries "Seed Crushing Unit" in Banaskantha District in its 100% Subsidiary Ihsedu Agro Chem. Banaskantha District is the largest Castor growing district in Gujarat.. and produces Castor seeds equal to the 2nd largest producer of Castor seeds in the world China

    China Castor seed production: 210,000 Metric Tonnes
    Banaskantha District: 201,430 Metric Tonnes
    ----------------------
    Jayant Promoters Udeshi Family also hold US Patent for efficient production of most widely used Castor oil derivative "Sebacic acid and its salts" US Patent No 6392074
    http://patft.uspto.gov/netacgi/nph-Parser?Sect2=PTO1&Sect2=HITOFF&p=1&u=/netahtml/PTO/search-bool.html&r=1&f=G&l=50&d=PALL&RefSrch=yes&Query=PN/6392074

    ----------------------
    Arkema the largest French Speciality Chemical's company in the world has recently signed a JV Agreement with Jayant Agro's 100% Subsidiary Ihsedu Agro Chem. Arkema In Oct 2013 paid 30cr for 24.99% stake valuing Jayant Agro's holding in its subsidiary at 90cr (75%)
    ----------------------
    ITOH Oil which is a 100yrs old Japansese Castor oil based Speciality chemicals company also has a JV with Jayant Ihsedu ITOH Green Chemical MArketing company with 40% stake by ITOH OIL..
    -------------------
    Mitsui chemical along with Itoh oil have signed an agreement for a JV to produce castor oil based polyols in India Jayant Agro's stake is 50% in this JV Polyols will be used for automobiles seats..in Asia and Japan
    ------------
    Castor oil and its derivatives are used for High performance Lubricants in Jet engines and Racing cars. It is also used as "Adhesives" for Electronics PCB, High performance plastics used in making electronic items like Cell phones, laptop. Food grade Plastics used for making medical supplies/equipments,
    High performance plastics used to withstand extreme corrosion such as "Auto Fuel parts" and Deep sea Drilling Corrosion resistant pipes.Underground Fiber optic cable
    Zero VOC (Volatile Organic Compounds) Paints, Inks, Chocolates, Icecreams, Lipsticks, Deodrants, perfumes, Chemicals used in diapers to prevent diaper rash, Non toxic Crayons, Non toxic Plastics toys, pens
    The list of end products are endless..
    ----------------------
    There is new EU regulation called "REACH" which prohibits use of low molecular weight phthalates (crude oil derived) plastics as they can leach out and are cancerous .. castor oil derived phthalates are the best replacements.. due to this Ford has stated all ford car dashboards are going to be made from castor oil derived Plastics.. NIKE has also released lightest ever football shoes made from castor oil derivatives..
    ---------------------------
    Its a sunrise industry and company is uniquely placed .. but even though results are good and dividends have been increasing consistently .. the stock fails to break out ... any insights..

    ReplyDelete
    Replies
    1. Hi,
      I don't know much about the company, but at first glance, there seems to be a contingent liability of 84crores on the balance sheet. For a company with 36 cr of profit and reserves of 166 cr, it could significantly dent the company's fortunes. Also, debt is quite high. Cashflows are not strong (most -ve).

      In my opinion, in an environment where interest rates may harden, any stock with high debt levels is unlikely to do well.

      Delete

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