Save your portfolio,from yourself

April 17, 2024

For an average retail investor, investment behaviour is much more crucial aspect to solve for rather than hunting for next great trend or genius investment idea. While most people focus on the later, the former is the one that tends to wreak havoc.

·       Having restraint over ‘FOMO feeling’ when markets are roaring and ability to reign in fear (bordering on psychosis) when everyone is panicking is key to investment success. It appears easy as a concept but very tough to achieve. And if everyone could do this, there wouldn’t be market cycles.

·       Most people feel they have mastered the art when they are able to buy when portfolio MTM is only slightly negative. The feeling is cemented after a temporary bounce back in the purchases. But a bear market relief rally can suck you in bad. 

·       The key test comes when the market is brutally slaughtered and despite throw away prices, hardly anyone comes out to buy, since most are licking wounds and start fearing for their financial security. 

·       Only few seasoned investors who have seen multiple cycles, have been tracking valuations and have build cash position over a bull cycle are able maintain composure and can go long during a carnage. Case in point, Covid drop, when most of investors cashed out (at minor profits or even loss) while there were many who went in long and hard, deferring home loan EMIs to invest in market. The logic being, 0either we are dead or there would be a solution. The thesis was life will move on and one could enjoy the spoils of biggest fire sale in years in the market, provided the Companies you invest in can weather the temporary crunch. 

·       The biggest threat to your portfolio is generally your own psyche and for majority of retail investors it is better to fall back on an Investment Advisor who can reign them in before they take a foolhardy step. Alternatively, its best to outsource the portfolio management to good Mutual fund managers. Investors tend to be more obsessed with directly picked stocks than mutual fund NAVs.