Managing Investment Risk by
Yourself
Three things you need to do/have: (1)Strong belief ; (2)Learning from past experience and (3) Understanding and interpreting present information correctly
Strong belief : “Is there
any possibility of losing money also”? or “I am going to gain from investment
only as I know to tackle downside risk”? What is your belief when you invest in
any investment instrument or investment product. If its of loss then there is
no point of investing in that product. Reason is you will be always fearful and
a slight negative can affect you emotionally and you end up taking wrong
decision i.e. withdraw when not required.
When you invest, your mindset, your belief system, your conviction
should be positive. No doubt, no fear, strong faith.
Learning from past experience:
If there is lack of positive belief, conviction why it is so? Is it because of
past experience or is it because of what others are saying? Please remember
what others are saying could be their own experience which might or might not
be relevant in your case. You have to analyse your experience only from your perspective,
your action/inaction that led to this experience. Let’s say you had a bad
experience of illiquidity or loss. Why it happened? Was it because of wrong
choice of product or was it because of wrong economic /market condition when
you withdrew or was it because you withdrew out of fear as everyone was doing due
to some negative factors at that time? You need to go back and examine yourself.
See how much money you got that time from that investment and what is the value
today . Think what if you had not withdrawn at that time? Would you have lost
or gained? On most occasion one has seen it has been error of judgement. So, by
now you should know what when you took right decision and why and when you took
wrong decision and why. I always tell people that whenever you invest and whenever
you withdraw, you should document in few words why you invested and also why he
withdrew. The biggest learning for each one of us is from reviewing our own
actions. This will help you to know what caution and precaution you need to
taken moving forward . One or few bad experience should never be generalised.
One need to understand the cause of it .
Understanding and interpreting
present information correctly : Now you don’t need to repeat past
mistake . Understand and interpret present information from only credible
reputed sources in terms of risk (losing) and return(gaining). Today in a
social media age there are many experts who in order to be relevant keeps
posting different views. Just don’t follow anyone blindly. Who knows many of
them have their own vested business interest. Many times, we have seen in past
many future predictions of great experts have gone wrong as no one is God here.
Your loss is your loss , your mental distress is your distress and so only you
have to safeguard against it There are some entities who provide only research ,
have decades old credential, have big clientele base for their research report.
Read their reports. Even if there is some cost for subscription go for it.
Please remember there is no free lunch and free lunch if is there it is of some
vested interest.
You know both psychological and
information gap you had which led to losses in past. Once you know present
information, you need to take a call what will be your reactions. We never
remain in same mindset always. It changes with changing scenario. So better you
note down somewhere if X ( Worst happen in next 3 month , 6 month ,1 years what
will be my reaction) . How long do I have the tolerance to bear that.This has
to be written with fully honesty in all fairness based on what you actually
believe you will do. Go through it few times on different day when in different
mood to ascertain there is consistency in your belief system. If you feel you might repeat same mistake as
past better avoid such product and invest in safer ones. Understand the notional
risk part and its impact on you emotionally , psychologically and even
physically ( health wise). If you know now with learning you can withstand
notional loss, volatility for short term and not panic then no issues you are
on right track .
Remember the famous proverb at
Railways Stations “Passengers please take care of your own luggage”. Same way
in investment “ Investors please take
care of your own money “ . So safeguard your investment interest.