22 Dec Don’t Blame Markets
The Betaal landed upon Vikramaditya’s broad shoulders and demanded he be explained the meaning of the statement,
“the problem is seldom with the market and almost always with the investor’s behaviour”
Vikramaditya smiled as usual and spoke about a simple plant.
He said, “Betaal my friend. I shall explain this with a simple example of a plant. We will change the format of our education a little bit. I will ask you some simple questions and in the process of our discussion you will get the answer to your question.
Are you agreeable Betaal?”
Betaal thought a little and eventually agreed to play along.
So continued the suave King in his inimical style, “When a plant does not grow well, is there any point in blaming the plant? By blaming the plant will it grow well? Or is the answer locked somewhere outside the plant ; in the environment?”
Betaal went with the drift of the argument that Vikram was building and said, “of course you can’t blame the plant and as you said the solution is indeed outside the plant in the environment. Perhaps the plant is receiving less water, less sunshine, less or incorrect fertiliser. It could be just anything. Hence blaming the plant isn’t going to help.”
Vikram smiled and said, “That’s exactly why you cannot blame the market. The market has indeed given handsome returns and nobody can question this because it is a fact. However it is also a fact that investor’s haven’t made good returns. The problem is not with the market but with investors’ behaviour.
Exiting the market the moment it falls and regretting the decision later when the market rebounds does not help the investor in recovering his losses. His staying invested would have helped instead.
Likewise when markets turn expensive, the investor instead of showing patience for the price to drop goes ahead and chooses to purchase at a high price because his greed tells him that prices are slated to one way which is only go higher and higher.
The lack of patience causes more pain to investors rather than the lack of intelligence. Markets only test our patience but seldom cause harm.
One must never ever forget that markets reflect the economy. Hence if the economy is strong markets can never disappoint over the long term.
Only if people were less fearful and less greedy but more patient, they would all have been rewarded handsomely by the market”
Betaal smiled and as usual showered some praises on Vikram and said, “yes now I have understood the significance of the statement, ‘the problem is seldom with the market and almost always with the investor’s behaviour’.
Like the sun, wind, water, soil and other elements were crucial for the plant similarly education, managing emotions of greed and fear, display of patience etc are crucial for the investor to earn healthy returns.
Blaming the markets is a futile act which at the most signifies the lack of understanding and education in personal finance.”
Saying these words the Betaal thanked Vikramaditya and took off and flew past the surrounding trees moving skywards till he turned invisible to the naked eye.
Vikram in his inimical continued to smile nonchalantly and continued his walk in the dense forest.