If done with discipline and patience, your investments can fetch enormous wealth, but if done carelessly and impulsively, they ruin all your savings.
Holding patience and being informed and guided are essential to your financial well-being
If done with discipline and patience, your investments can fetch enormous wealth, but if done carelessly and impulsively, they ruin all your savings.
As Warren Buffett says, “The stock market is a device for transferring money from the impatient to the patient.” Be it the stocks, mutual funds or any other form of investment, impulsive and emotional decisions are detrimental to your financial health.
Before we talk about ways to avoid impulsive investment decisions, let us look at different types of investors and their traits.
Though one can find classifications done by various schools of thought, broadly, investors can be divided into:
As observed, spontaneous and impulsive investors carry the highest risk. One should avoid such practice. But how? You should understand that intuitions and feelings are among the factors that determine investments, but these are not the only ones. There has to be a clear layout of planned investment, be it a long-term goal-oriented portfolio or a short-term trading portfolio. The portfolio needs to be continuously watched, analysed and re-balanced, whenever needed.
Though investments depend on individual goals, risk appetite, preference for assets and time horizon, let us quickly look at some pointers to keep in mind during the pandemic.
Do also remember what Albert Einstein said: “Three great forces rule the world — stupidity, fear and greed.” In investment, too, greed is a manifestation of hope, while fear is a manifestation of loss. We need to be careful while deriving the ‘emotional win’ to ‘get pride’ from our investments, in an attempt to avoid the ‘emotional drain’ coming out of ‘regret of loss’. So, there has to be a right balance between ‘emotion’ and ‘rationality’.
The writer is a CFA and HoD Financial Markets and FinTech, ITM B-School
DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.