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These 3 psychological factors will determine your success in stock markets

You cannot expect to make profits in every scheme or stock. There will be losses in a few investments

November 26, 2020 / 11:14 AM IST

Anupam Roongta

If having the right information at the appropriate time was enough to be successful in the stock market, many would have made millions by now. In the internet age, information is no more a luxury of a few. Still, a lay investor typically looks for a ‘solid’ tip (i.e., information) which can make him rich. He doesn’t realise that the past tips he got were also quite solid. Did he make his millions?

Have a look at these three psychological factors. Check if you already possess these qualities

Or if you need to develop them.

Temperament

Close

“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd” – Warren Buffett.

Answer these questions to yourself:

-Do you panic if your portfolio goes down by more than 10 percent?

-Do you think five years is a very long time to hold on to your equity investments?

-Do you sell the stocks which are in profit and hold on to those which are in loss?

-Do you try to ‘time the market’?

-Do you stay glued to the screen during market hours?

-Do you regret when you lose an opportunity?

-Do you believe trading actively will improve your returns?

If the answer to one or more of the above questions is a ‘Yes,’ then you need to work on your temperament. In my opinion, investing is one percent information and 99 percent temperament. I cannot stress this fact enough.

Expecting consistent returns every year

When your advisor tells you that you can expect say 12 per cent returns, compounded annually over 5-10 years, you naturally expect these returns to show up every year in your portfolio.

But, the idea of suggesting 'long-term' investment is based on the fact that you may witness losses in the interim. If it were possible to generate returns consistently in equities, then why would anyone invest in fixed deposits at all?

The low penetration of equity in India is because of the uneasiness which comes with market fluctuations.

Consider this: when you invest in stocks or mutual funds, you become a business-person. No matter what you do professionally, you end up doing business in this case.

Sure you are not involved actively in the business. But you are like a sleeping partner or a non-working partner.

Does doing business suit you? Similarly, is equity your cup of tea?  You have to ask these questions to yourself. Losing your peace of mind over your equity investment is not worth it.

You have to be strong. Else, don't do it at all.

Expecting to make profit in every stock and mutual fund scheme

Do you think a business-person makes profit in every deal?

Don't you think they have bad deals wherein they get partial payment and sometimes no payment at all for the products/ services delivered?

But if they are making good profits overall or expecting to make good profits in the long run, they will continue with the business, right?

Similar is the case with your mutual funds and stocks portfolio. You cannot expect to make profits in every scheme or stock. There will be losses in a few investments.

You can take comfort from the fact that most of the successful investors of the world also lose money every now and then. Check the track record of Warren Buffett, Peter Lynch, Philip Fisher, Rakesh Jhunjhunwala, Vijay Kedia, etc. They have lost money in at least two out of ten stocks they invested in. Still, they became super-rich.

What can we learn from this fact?

What's important is that you make good returns in the long-run on your overall portfolio. If losing money in a few schemes/ stocks bother you, maybe equity is not for you.

Nothing wrong in it.

Just that it is not worth it to make money in an investment after losing your sleep over it. Every investment is not meant for everyone.

Choose what suits you and then invest in it.

(The writer is a SEBI-registered research analyst at www.anupamroongta.com)
first published: Nov 26, 2020 11:14 am

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