Let me begin by saying this again: every investment has to be goal-based. Imagine going to a financial adviser and saying, “I wish to invest Rs 3 million. And I do not know the objective, nor the time frame.” Sounds odd, doesn’t it?
If you have a goal and you know you are going to achieve it, it helps you remain calm. Conquering fear is an important step in sensible investing. Fear and panic are of course closely connected.
When were you hit by fear last?
Fear is something that is very old. Remember, that the fact that we are here is proof that our ancestors were not scared a lot! The brave guys got killed by a tiger or an elephant. Our ancestors knew how to survive!
They must have stayed away from ‘fearful’ situations. Fear is a defence mechanism. Our eyebrows go up, nostrils flare, we do not know whether to use flight to handle our fright. When people near us get scared, so do we.
When all of us have that fear, it leads to panic. With a lot of retail investors depending on relationship managers for ‘advice’, panic is likely to spread far more easily, and fear is not rationally controlled.
Suppose you need to have Rs 2 crore for your daughter’s Ivy league education in 2024, and you have Rs 1.80 crore in an ultra-short bond fund. You KNOW that you will achieve the goal, immaterial of what happens in the market. So, you will have no fear, and there will be no need to panic. Staying calm is POSSIBLE because you have a goal and you are clear about it.
If your next goal is ‘Retirement in 2032’, you can still remain calm because your goal is still 13 years away and you know the market has enough time to recover from this fall.
How does fear impact performance in the markets? Well, you are already worried and your relationship manager calls you. “I think you should shift from large-cap portfolio management system (PMS) to mid-cap.”
You’ve always thought that if there is a change in the market, you should do something (action bias). So, you think this is a good thing. You agree with the relationship manager and shift Rs 1 crore from large-cap PMS to mid-cap PMS.
Now the banker charges you 2.5 per cent set-up charges, and the fund manager charges you 2.5 per cent asset managing fees. Good, the real beneficiary of the investor panic is the bank. What you should instead do is simple. Learn deep breathing. Learn vipassana. Cut out a lot of external stimuli. You do not need people who will scare you more.
Stay away from business channels. Even watching animal channels that show you how animals react to fear is far more useful than those scare-mongering business channels. Channels either urge you to invest more in a rising market or sell off when it has fallen. Panic-buying is called the ‘FOMO’ (Fear of Missing Out) effect. You are worried that if you do not buy NOW, you will miss out!
Play a game, go for a walk, chat up with a person who has no clue about markets. If you have a garden near your place of work, go sit there and soak in the greens. Pick up a book, any book, and read 30 pages.
WhatsApp, Facebook and television are the Weapons of Mass Destruction (WMD) today. They beautifully take fear in, and spread it. Stay away from these WMD. Get out of all investment and health groups.
I did not panic, but got out of all such groups; to me, it did not make any sense at all. Conquering fear (which leads to panic) is far more important than learning many investment techniques!