Mental temperament & investing success

“Mental Temperament often scores over technical expertise when it comes to successful investing experience.”

I hope and wish that you and your family are safe and in good health. The new COVID variant Omicron has a very fast spread but the reports suggest it’s less severe in most cases not leading to major complications.

  • Equity markets have been pretty volatile in past 2 weeks and this time the reason is not economic slowdown but a prospering US Economy among others. I have tried answering few basic but important questions (both
    asked and unasked).

Why is market going down?

The very first thing to understand is that markets eventually go through corrections as volatility is a fundamental attribute of equity investing. However when we notice sudden heightened volatility there are some clearly visible triggers. This time it’s US Fed reserve going to increase interest rates to control inflation. They have enough evidences to satisfy them that US economy is doing very well on important counts and it does not need monetary stimulus. Whenever US runs a tight monetary policy and increases interest rates, it results into volatility in emerging markets including India. Though analysts feel that domestic participation in Indian Market has become very strong in recent times and it is very wide based. Mutual Fund SIPs, incremental money from EPFO, NPS, Life Insurance Companies and massive retail participation are strong source of money going into Indian Equity and can reduce/offset the volatility to a very large extent.

Will it go down further?

Long term trajectory of market is very clear and that’s up. One has to manage intermittent volatility and experience teaches us that. Periodic corrections in the market are not only essential but also healthy for investing. Many a time’s new investors are excited about very high return in short period of time and they base their decisions on such short term observations. Having a very high expectation of return in a very short period is dangerous and pushes many investors to take riskier bets which are often disproportionate to their risk profile. Something that they cannot handle and leave them with a bad experience.

I have lost ‘X’ amount in last 10 days.

The very important thing to understand is whether money was invested to gain in 10 days? If so, it was not an investment but a speculative bet. What has been the experience in 5-7-10 years? There will be very clear answers.

We have some money to invest but not sure where is the near term bottom

Systematic Transfer is an effective way to deploy surplus money towards equity. It removes the worry of timing the market to full precision. While some drop in indices brings valuation comfort to certain extent, staggering it over few days/weeks is a time tested method to manage volatility and emotion. Starting additional SIPs can also be very helpful in taking advantage of market volatility

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