Let me begin by saying this again: Every Investment has to be Goal Based Investing. Imagine going to a financial adviser and saying “I wish to invest Rs. 3 million…and I do not know the objective, nor the time frame”. Sounds stupid does it not?
If you have a goal and you know you are going to achieve it, it helps you remain calm. Conquering fear is a very important step in sensible and smart investing. Fear and panic are of course closely connected. When were you hit by fear last?
a. When you saw / heard about an illness of a close friend or relative?
b. When the market tanked 1000 points in a day (it is just 2.5%, but the media made it look worse?)
c. when you saw your health report?
Fear is something which is very old. Remember the fact that we are here is proof that our ancestors were the scared lot! The brave guys got killed by a tiger or an elephant. Our ancestors knew how to survive! They must have stayed away from ‘fearful’ situations. Fear is a defense mechanism. Our eyebrow goes up, nostrils flare, we do not know whether to use flight to handle our fright. When we see people near us getting scared, we catch that feeling. When all of us have that fear, it leads to panic. With a lot of retail investors depending on Relationship Managers for ‘advice’ – panic is likely to spread far more easily, and fear is not rationally controlled.
Suppose you need to have Rs. 2 crores for your daughter’s Ivy league education in 2024, and you have Rs. 1.80 crs in a ultra short bond fund..YOU KNOW THAT you will achieve the goal, IMMATERIAL of what happens in the market. So you will have no fear – and there will be no need to panic. Staying calm is POSSIBLE because you have a goal and you are clear about the goal. If your next goal is “Retirement in 2032” – you can still remain calm because your goal is still 13 years away and you know that the market has enough time to recover from this fall (whatever the fall).
How does fear impact performance in the markets? Well you are already worried and your RM calls you and says “I think you should shift from LC pms to MC pms”. You have always thought that if there is a change in the market you should do something (action bias). So you think this is a good thing to do. So you agree with the RM and shift Rs. 1 crore from Large cap pms to Mid cap pms (sounds stupid, but such terms exist). Now the banker charges you 2.5% set up charges, and the fund manager charges you 2.5% asset managing fees. Good, the real beneficiary of the investor panic is of course the bank.
What you should instead do is simple. Learn deep breathing. Learn Vipassana.
Cut out a lot of external stimuli. You do not need people who will scare you more, when you are already scared.
Stay away from Investors with poor investing skills. Poor investing skills is matched by panic.
Stay away from business channels. Even watching Animal channels which show you how animals react to fear (and panic) is far, far more useful than the scare mongering that channels can do. Channels either urge you to invest more in a rising market or sell off in a market that has fallen – both are panic. Panic buying is called the “FOMO” effect. You are worried that if you do not buy NOW, you will miss out !
Play a game, go for a walk, chat up with a person who has no clue about the markets, talk to a school teacher or a doctor – who stay away from the market….it helps. If you have a garden near your place of work, go and sit there and soak in the greens. Pick up a book – any book – and read 30 pages. If you pick up Yog Vashista of course it will be 2 or 3 pages!!
Whats App, Facebook, television – are the WMD of today. Weapons of Mass Destruction. They beautifully take fear in say the US markets and spread it all over the world. It is amusing to see “experts” discuss how Trump’s tweet can bring down the Sensex by 2000 points! Stay away from these WMD. Get out of all investment and health groups. I did not panic, but got out of all such groups – to me it did not make any sense at all.
Conquering fear (which leads to panic) is far more important than learning many investment techniques!
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