In Investing, speed kills.
As an investor, the above is the most important Law of Investing that you may note and follow faithfully. In Investing, a lack of professional financial advice also kills. This is the second law that you must remember along with the first one in the beginning.
All of us, who Invest, show marked anxiety to participate in the Equity Markets. Moreover, we ceaselessly search for new Investment Instruments and new Investment Ideas. This is evident when the Bear Market reaches rock bottom, and the Bull Market soars. Peer pressure that externally questions an Investor’s “success” by conventional terms and herd-like Investment choices also acts to make the otherwise perfectly sensible Investor greedy, giving rise to actions which the Investor almost always regrets. This is all a particular behaviour pattern that Investors exhibit in Markets. This behaviour pattern makes people go ahead and buy Stocks without having made any long-term analysis upon the Stock’s performance, and their own, peer pressure generated Idea’s tenability.
What are these behavioural patterns? Let’s enumerate below.
- Firstly, as it happens, the decision to buy Stocks is made on the basis of the source of the idea and not on merits of an Individual Idea. In short, we let others’ opinions affect our Investment Choices and Behaviour therein. We see here a fateful trend wherein the Investor recommending or owning the successful Stock turning into a Brand just by virtue of that ownership. This is because, in human behaviour, it often suffices to know that the Brand has endorsed a Stock. Once this endorsement has been made, people do not think any further. Why has time to think? This is the stage which is ripe for disaster.
- Further, in the human way of thinking, one’s own Ideas always look less attractive than the Idea that strikes our neighbour. Our Ideas in fact look positively lesser when compared to the Idea that others recommend. This makes it feel worthwhile, in our thinking, to invest substantial amounts of time listening to what others have to say, than in doing one’s own, rational research.
- Moreover, in desperation to own newer Ideas, many Investors make the cardinal error of selling their own winning Holdings just to create some Liquidity. This decision to Sell merely supports that intolerable desire to Buy; and such a decision is irrational and harmful.
- Finally, when the Fairy Godmother or Santa Clause opens that magic bag of goodies that instantly hit the upper circuit; and the Market simply cannot have enough of these. Everyone then speaks of what went up on that particular day; and just as all hype dies down, after two days, everyone forgets all bout Santa Clause’s bag after a couple of days.
- We learn here that the Market hype introduces that principle flaw that creeps into one’s Investment Approach, stimulating an ingrained and dangerous belief that rapid change is essential in maintaining Investment Performance. This is what turns into that single most important thing that creates the need for compulsive and irrational change as regards your Investment Choices and Habits. The consequences prove disastrous.
- Speed Kills. The Investor must learn and appreciate that speed in decision making and in Investment moves, contributes only to increased Risk with proportionally decreased chances of delivering good Returns. In Investment, when Risks are higher than the Return, it is always a wise decision to pass up the so-called inviting opportunity. Learn to read and understand these symptoms early in yourself and avoid all potential errors. This is important to remember.
- Lastly, equally important for you to remember is to not go alone into Markets, without any clue as to what Investing actually is. Even if you know more than others, it is always advised to acquire services from a professional Financial Advisor to help you always make the right decisions in your journey as an Investor.
- Invest. Do not Speculate. Don’t grab at Riches. Rather, grow Wealth.
Anamitra Dasgupta at NextLevel-Education