We place value on something because others know about it and place value on it. For example, in Bengaluru there is a famous address called Kingfisher Towers within UB City. Houses start at Rs 30 Crs. And one Mr. Narayana Murthy bought a house there recently by paying Rs 50 Crs.

The value of that address is very high because everyone knows that only the very rich can afford to buy one and the fact that you have at least one multi-billionaire as a neighbor, adds prestige. The layout of the house, Vaastu compliance, the views, the size of the apartment is all moot. It’s a great address and if you buy it – it will communicate a lot without you having to say a word.

In my profession of Investing, one of the surest ways to get more clients and respectability is … to look rich. If you look rich, you signal that whatever it is you are going to sell seems to have worked for you. That is the surest way to get more doors to open. Discussions about CAGR, AUM etc. etc. … can happen only after the doors open. If somehow, you can look rich and make your product exclusive, you will get even more doors to open. I am guessing that selling AIFs is easier than Mutual Funds. The former feels exclusive like a chauffeur driven sedan while the latter looks like a public transport.

One of the failings of Tata Nano, in my opinion, was that Tata overlooked this aspect: what will people think. Everybody read about the Nano cars catching fire, everybody knew how clunky it looked, every heard what it sounded like, and above all everybody knew the price of the car! And therefore, nobody wanted to be seen in a product that screamed: I couldn’t afford better.

People in Kingfisher Towers want to be seen; people inside Tata Nano don’t.

My point is simple: We are wired to value something based on what others value it. Studies have shown that people would rather earn $60,000 per year while their neighbors earn $50,000 than earn $70,000 per year while neighbors earn $80,000. People want to be relatively better off, rather than absolutely.

Yes, it’s true. We are wired to be stupid.

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Unfortunately, most people bring that attitude to investing as well. They would rather be an owner of famous but loss making restaurant rather than own an extremely profitable but unsexy company. Everyone knows the restaurant without knowing it’s loss making. And that brings prestige. The unsexy company can make a lot of returns, but only you know about it.

A friend of mine has this tendency. He wants to invest big money and own stakes in startups. And I ask him, why don’t we just buy shares of an already profitable business and make better returns?

Now, when I think about it, I kind of sense the unspoken needs. He wants to be an early investor in a startup that becomes the next big thing, never mind the losses and the very low probability; the proposition is attractive to him because if it works out, he can brag about it. Being a conservative investor may also make him rich slowly but with a higher probability, but it is not as sexy. It’s not arithmetic, but chemistry and psychology.

Would you rather be the greatest lover investor in the world yet be known as the worst or would you rather be the worst lover investor and be known as the greatest?

– Paraphrasing Warren Buffett’s quote on outer scorecard vs inner scorecard

You see, when it comes to investing, you have to be willing to live by an inner scorecard. What other people think should matter less than 0. So, if you think better returns can be made buying unpopular, unsexy companies, then that is where you need to invest. If you think investing in AI stocks is actually risky, you should avoid those even if it makes you look unpopular.

In short, invest for invest sake. Not to look sexy or popular.