What are the typical questions about investing more particularly about investing in stocks? We tend to ask ourselves or others about how long the tenure is or how long are we willing to stay invested for.
These are to do with the time horizons and then the imminent pertinent question is: its short term or long term? So, how long is long and how short is short? This is a quick question with no easy answers.
When there’s a news about a company and/or economy either good or bad the stock market tends to fluctuate, and the price action continues with each of the stocks. Should price differential alter the way we look at our goal? As markets (equity and debt) turn more and more volatile in the recent days, the question that strikes many investors is “Should I get out of the markets?”
In an ideal situation, we define our goals, quantify them and extrapolate it with inflation. Then start a backward calculation of what should be the investment amount to reach this goal in the specified period.
Then we look at asset allocation based on the risk appetite, that’s the ideal world scenario but real world tends to be much different. In real world, we face many obstacles and the biggest of them are ourselves.
We build short term narratives to construct long term story, though it should be on the contrary and we could easily get carried away with this. We come up with many excuses of these near-term debilities to abandon the long-term goals. Many a times, when we see our portfolios going down, feel the itch to act and most of the times is to immediately pull out of the markets. This, however, is a perfect human reaction and so I defined earlier as the biggest obstacle to our success in our own wealth creation.
It’s proven that despite the various methods of investing, success in investing hinges on how we react or behave to a particular situation of the market, always. Many a time, inaction is the best course of action. It’s difficult to remain immune to the chaos around, shut the noise and remain calm but it’s those who have managed to do this attain triumph. The chief temperament of investing is patience. When investing in stocks, one requires patience for taking a high conviction bet, then patience is required to see the profits realise from these bets and then it’s important to show patience during the volatile times.
Comparing baseball, Warren Buffet famously puts investing as “wait for the pitch you like”. He highlights the criticality of inaction at times when the circumstances push us to take an action either to buy or sell. It’s those moments of madness that, if an investor, could resist the experience of investing would be completely different. He tops up saying, “there’s no penalty except opportunity lost”. Yes, I’ve met many investors who rue that they’ve either sold a particular stop prematurely or couldn’t enter a particular stock at the bottom. If the returns in your portfolio are nominal so are these opportunity losses, they never are for real.
So, short-term aberrations shouldn’t rule the long-term judgments though one should be vigilant of these and seek for opportunities if it suits the risk appetite. If one is clear with their risk tolerance levels, then the answer of whether to stay in the markets or not is easier. In the hindsight, when we look back at the previous corrections over long periods of thirty years and above, they remain as a small blip in the overall structure. This is because what possibly seemed the like the end of the world is just a bend. So, keep calm and stay awake.