New York — The old adage “the exception that proves the rule” has often been cited, yet its usage typically leads to more confusion than clarity, especially in scenarios where strict rules should govern decisions. Originally, this phrase signified that the presence of an exception testing a rule actually confirmed its general validity. However, it has since morphed into a broadly misinterpreted justification for deviating from established guidelines.
In the realm of investor behavior, this misinterpretation becomes particularly glaring. Even as the principles of smart investing have become better known, many an investor’s portfolio inadvertently becomes a collection of exceptions rather than adherences. For instance, conventional wisdom counsels against pouring money into an equity fund in a single transaction. Instead, the recommended strategy is to utilize Systematic Investment Plans (SIPs), known for mitigating risk by averaging the purchase price of stocks over time.
Yet, tales of deviations abound. Some investors, upon receiving unexpected windfalls, might be tempted to invest it all at once based on a hot tip. Others might choose to put money into sector-specific funds because they believe a particular sector, like infrastructure, is poised for growth, despite the higher risks involved. Then there are those who, wary of equity market volatility, opt for long-term fixed deposits, choosing safety over potentially higher returns.
These rationalizations highlight scenarios where the general investment rules are put aside. They illustrate a broader behavioral pattern where rules are viewed not as mandates but as mere suggestions, open to amendment whenever the perceived opportunity arises.
An interesting counterperspective can be found in a document by NASA that, while focusing on software development, offers universal insights applicable to investment strategies as well. Authored by Gerard Holzmann, a NASA computer scientist, the document titled “The Power of Ten” advocates for treating rules as laws rather than flexible guidelines to achieve better outcomes.
Holzmann’s research concluded that the effectiveness of a set of rules is substantially undermined when exceptions are made. Organizations with numerous guidelines often find employees becoming adept at justifying deviations rather than following established protocols. By advocating for a simplification of rules and strictly prohibiting exceptions, Holzmann observed improved compliance and results.
This mindset can greatly benefit individual investors. With no external body to enforce investment rules, self-discipline becomes paramount. Mimicking Holzmann’s approach could lead to not only clearer investment strategies but also potentially safer and more profitable outcomes. This is crucial because while exceptions sometimes lead to gains, they more frequently result in losses, which could have been avoided by adhering to proven strategies.
Thus, viewing investment guidelines as inviolable can benefit investors significantly. Although one might miss a potentially lucrative opportunity, this approach generally acts as a safeguard against the frequent mistakes spurred by market volatility, persuasive sales pitches, or personal biases.
In conclusion, while it may be tempting to consider oneself the exception, the safe and prudent course is to stick with established rules. This not only serves to simplify decision-making but helps ensure that decisions are not clouded by exceptional opportunities that might lead to exceptional losses.