Managing Investment Risk by Yourself

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 Think what if you had not withdrawn at that time?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.