Before delving deeper into how vicarious learning plays a crucial role in investing, let us first understand what is vicarious learning. Vicarious learning is the process of learning merely by observing our surroundings. Vicarious learning happens when we as observers pay ample attention to what is happening around, retain the observation, produce similar motor reproduction and are motivated to perform or learn what we see around, than vicarious learning automatically takes place in the process. However, if any of these factors are missing, then the observer is not able to efficiently learn from the surroundings.
As they say, life is too small to make every mistake and then learn from it. A smart person always learns from others mistakes. And, imagine how much each one of us has learnt from life apart from the direct learning given to us during our schooling. So, vicarious learning happens naturally to us and is of big help in teaching us the ways of living life.
Vicarious learning is extremely crucial in investing as well. Let us check out how does it help in the investing world?
Importance of Vicarious learning in investing
Winning stocks: Many self-investors believe in keenly observing the winning stocks as they are still not able to decide whether they would want to invest in those stocks. Vicarious learning goes a long way in teaching investors to formulate a couple of strategies before blindly investing in winning stocks.
Quality Check: When it comes to mutual fund investment, the idea of staying invested for long works out for better. But, for an individual investor the same does not work in case the stock pricing go wrong due to some damaging cause such as fraudulent activities of the management. So, here waiting to see things turnaround wont make much sense. Thus, vicarious learning in stock investment teaches you to believe in value investing by deeply analysing the companies on varied fronts rather than simply investing for the heck of it.
Profit booking: Behavioural scientists have often proposed that we feel the pain much more than pleasure. If we have had a bad experience of stocks in the past, then, we are pretty sensitive towards the pain. And, in that process, we may not prefer to sell bad performing stocks because we don’t want to incur any more losses. And, we may keep thinking about booking heavy profits from stocks while still holding on to bad stocks, but, is it going to work this way? So, vicarious learners learn that to incur good profits, it is important to critically evaluate bad performing stocks, and get rid of them at the earliest.
Correcting errors: Vicarious learning teaches us to correct our errors by observing other expert investors. Instead of limiting the potential to invest, it is rather imperative to learn from mistakes and keep investing. Fears take over investors only when they refuse to learn from the mistakes they have made in the past. So, vicarious learning plays a major role in correcting errors and overcoming the fear of investment.
Value investing: Vicarious learning teaches us a lot about not just investment but about approaching the life in a much better way. The legendary investors like Warren Buffet and Charlie Munger are the perfect examples of vicarious learners. They devised their own theories and strategies for investment with the valuable learnings they derived by being keen observers. And, now the entire world of investors has turned out to be vicarious learners trying to learn the investing psychology of Warren Buffet and Charlie Munger.
Man has been bestowed the highest power to learn and communicate our learnings with each other. So, why not make the best use of being the highest species on the planet. Vicarious learning is a great way to learn investing. It can take you miles ahead provided you learn to observe the rules of investing with the right perspective in mind. Happy investing!
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