Beating the 'Knowing Doing Gap'

Action is the real measure of intelligence.
Napoleon Hill

The premise behind universal education, financial literacy and other forms of training is that if people know the right thing(or even what is considered as wrong), then they would ensure that the right things happen. But is it true? If it were, lesser people would be obese, addicts, procrastinators etc.  


In investing, this is especially relevant. In boom periods, investors readily succumb to herd mentality and irrational exuberance. But when the bust presents attractive buying opportunities, then they freeze and fall prey to analysis paralysis. The best laid plans fall apart, and they sit on the sidelines. Now, one way to defend is that one should not catch a falling knife by investing before the bottom. But given that markets tend to upward correct very rapidly, the chances of losing out on the rebound are more than being stung on the downward spiral. Of course, buying should be done only when the valuations are otherwise quite attractive. Some real life examples in the Indian context of these happening-at different times in the past 3 years

• False rumours triggering crash:--ICICI Bank, Orchid Chemicals.
• Stock trading to less than near cash value of investments:- Piramal Holdings
• Dividend Yields > 8%;- Shipping Corporation, Ashok Leyland.
• M&A concerns leading to steep fall;-Tata Motors, Ranbaxy, Patni
• High grade debt at high yields:- Tata Steel/Tata Motors NCDs issued in 2009

James Montier and Dr Atul Gawande straddle different fields-investing and medicine-but both agree on the importance of a disciplined process. And that is where checklists and preset actions(buy orders, investor lockin periods, SIPs) help ensure action where it is justified rationally during normal periods, but where fear may stall it during burst.

In non financial contexts-losing weight, deaddiction etc-external support in form of counseling, support groups, family backing etc have been shown to help. But finally, will power and certain preset actions(charity to those one detests for breaking the 'knowing doing' gap, delayed gratification) carry the day.