Important Questions Every Investor needs to find answers to before they start Investing-
Successful investing is not easy. I am reminded of a famous saying about Stock Market “ If you don’t know who you are, this is an expensive place to find out”- Adam Smith – The Money Game
Almost 97% of people fail in making returns in the stock Market because they do not have a framework around investing nor do they completely understand Risks associated with investing.
To name a few risks which exist in investing are Volatility Risk, Liquidity Risk, Concentration Risk, Reinvestment Risk, Human Behavior Fallacies, Economic Cycle Risk, Currency Risk.
Most of the investors who become unsuccessful are the ones who base their investing decisions solely on the quantum of returns they are chasing. The lure of higher returns pushes investors toward irrationality in decision making. They end throwing caution to wind and following herd behavior.
It is during these euphoric times of Market frenzy that investors fall prey to marketing campaigns run by wolves of wall street who know that when sentiment is extremely positive it is a lot easier to sell.
Promoters of Companies line up IPOs and Mutual Funds flood the Markets with New Fund Offers.
It is at such euphoric times that one needs to take precaution and look at valuations and other macro factors like economic cycles, Interest Rate Cycle, Dollar Index, G sec Yield and others.
Have penned down a few important questions’ investors need to find answers to before they start investing. The list is not exhaustive, yet it sets you up in the right direction.
# What type of investor you are? A Conservative, Balanced or Aggressive Investor.
# What is the Objective of Investing? Is it Wealth Creation or Income Generation or only Wealth Preservation. Have a pre-defined objective and clarity of thought. It will cut down a lot of noise from your investing process.
# Have you ever experienced market corrections? Corrections in equity Markets can range from 15% to 50%
# Were you emotionally scared when markets dropped 20%-30%? Or was your mind telling you, it is an opportunity to invest at lower levels?
# Were you a buyer in equity markets during the previous correction?
# Did you exit at the time of last correction?
# Were you able to invest meaningfully when markets were down substantially?
# Will you be alright, if next one-year return is -10% ?
# Will you be comfortable if the next two-year return is 0% ? Or would you start seeing it as an opportunity lost in terms of Interest you could have earned.
In investing as in Life, it helps to know your own self.
An investor needs to assess his risk-taking capability, his tolerance level towards volatility, his return expectation and choice of investment framework he wishes to use to achieve those returns, and his liquidity needs.
The right temperament is what is most needed in successful investing !!
# Disclaimer- The aim and objective of creating this Blog is to keep its readers abreast of latest happenings in Financial Markets. The Central idea is to disseminate information on Financial products, Market views of Experts, Recent trends in the financial industry, Business Related Information of Companies and under no circumstances should be construed as Advice. The Blog is not intended to be a recommendation to Buy, Sell or trade in any financial product and is created for educational purposes only.