What is investing all about? Key points that you must make yourself be aware of

What is investing all about? Key points that you must make yourself be aware of

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Investor, Investment, Investing is about investor's emotions, Sensex, Nifty, Indian Equity Market

All it took was five consecutive days of downward closing of the Sensex and Nifty for the investors to seek answers as to if the rising trend in the Indian equity markets are going to end. Month–on-month, the markets has risen over 22% in 2017 as of July and YTD over 24%. Over the past few weeks, a point debated was, when will the pause happen? And when the pause happens, we run scurrying for cover. The markets will go higher. There is no doubt about it. At the same time, the market indices will also come down. The point is whatever the market does, an investor’s wealth journey should not be interrupted. And the key to continued investment success, will be, how we as investors react or rather do not react.

Action is the key

Reaction should be in the rarest of rare cases. And that’s why it is important that one has a plan and process as shields and strategy in the volatile world of investing. It is important to learn from history and repeat history. Between the period July 2015–July 2016, the markets were flat. The markets corrected by over 22% in the interim and recovered to be in the flat territory. And in the next one year, it delivered a return in excess of 14%. From the lows it has delivered a return in excess of 35%. All the above numbers are statistics and it can be used the way one wants to use.

This is where the processes come into play. The process framework includes asset allocation, time horizon, liquidity needs. The second level includes strategic and tactical allocations. You should not lose because of lack of knowledge as financial instruments will play an important role in asset creation or destruction. Having an asset allocation, along with strong emotional strength goes a long way in the blooming of your wealth creation. Investing is also about an investor’s emotions.

Asset allocation is one aspect which is ignored or is the first casualty in a rising market. One finds comfort in the numbers and continues to follow the herd. This is one moment where one needs to stop and take stock of things. Investing is not only about buying and selling. It’s also about staying put and having patience. Its also about letting go of the dead wood at the earliest. It is about not averaging the dead wood. It is also about buying at higher levels, if there is a merit in the stock. In investing, try to know your own emotional self so that the volatility in the markets would not endanger your investments and your personal investment philosophy.