Imagine what would have happened if Anil Kumble had quit cricket because he can’t hit a hundred like Sachin Tendulkar OR Rahul Dravid stopped playing because he can’t bowl like Kapil Dev? They would have not only ruined their career but would have also missed such a great fan following.
Now imagine another scenario where all the players in the team, instead of focusing on their own strengths start copying others. Ishant Sharma fighting with Virat Kohli to come as on opener so that he can also hit a century and Rohit Sharma fighting to open the bowling so that he can have a good bowling record.
Funny scenario, right? You know what is funnier, that most of the people try to do this with their investments. They try to copy others and their investment strategy. They invest in stocks because their friends or colleagues are investing in them, or they invest in mutual funds because their relative is also investing.
Investments are a personal thing. You need to understand why are you investing, what product are you investing in, what is your investment time frame, what is your risk appetite etc. Just because your colleague or neighbour or friend is taking extra risk and investing his money in small cap stocks/mutual funds / ULIPs, you should not do the same. You should understand what game you are playing. Every individual has his own set of goals and investments should be done keeping them in mind. You should not invest in a product just because your neighbour / colleague is investing. For the sole reason that your goal and risk-taking ability is different from theirs.
Understand your risk appetite, your time horizon, your asset allocation and then invest. It is completely ok if your return on investment is 2% less than your neighbour or if you don’t invest on days when markets are down 5% or you invest in equity mutual funds rather than investing in stocks or invest in a debt instrument instead of equity, if it gives you a goodnight sleep.
People invest in stock market / equity mutual funds with a time horizon of say 5 years but get jittery when stock price / NAV comes down by 5%. If you are an existing investor you must be aware that equity markets are bound to be volatile and there is nothing to be worried about. If you are new to investments then start with Debt mutual funds, gradually move to hybrid products and then to equity funds and lastly if you feel like then sector funds. Stock market have given enough opportunities in past and it will continue to give in future also. There is no hurry to invest. First understand and then invest.
Always remember losses are not made because of volatility in stock market, they are made because of volatility in your mind and that happens when you invest in products which doesn’t suit your risk appetite.
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” – The Intelligent Investor
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