Page 32 - Masala Lite Issue 158 | February 2024

32 CASH COURSE WITH ATUL The next time a crisis leads to sharp selling in the market, ask yourself the following

TRYING TO BE FLAWLESS The answer is often no.
question: is the reason why prices are falling now going to keep them low in 10 years?

Atul Sethi from Letting Your Emotions Run Wild
Many investing mistakes come from letting emotions play an outsized role in decision
Farnam Tree gives making. Controlling this will allow you to reap dividends immediately. Uncontrolled
his insight. fear and greed put us in emotional states that obscure clear thinking. At its worst,
fear dulls your appetite for risk and has a huge opportunity cost.
A healthy dose of fear and greed is necessary. Successful investing requires you to
not always conform to the masses. Fear reminds you to not jump aboard speculative
investment schemes, while greed gives you the confidence required to purchase
assets while everyone else is selling.
Uncertainty is the root of emotional triggers. As the number of potential outcomes
to a situation increases, our imagination plays out different scenarios that can unfold.
Being objective is the best way to combat this, and my favourite method is to write
things down. Since using an investment journal close to a decade ago, the clarity in
my decision making went up greatly.
Having No Information Filter
Being too careful and with the aim of preventing mistakes is counterproductive in Without being deliberate about what information you consume; it is easy to become
investing. Risk is part of investing. Protecting yourself from adverse outcomes is unsettled and for your mental boat to rock. All information is either from the source,
futile, and only leads to suboptimal results. or through a lens. The latter comes with a narrative serving a purpose that might
not align with yours. Do not blame the news outlets. They are just doing their job.
Investment decisions require judgment based on limited information today, that are
subject to numerous variables beyond your control tomorrow. It is for this reason Remember, it is always best to go to the source and try to form your own opinion.
that success in investing is compared to baseball. A 40 percent hit rate is exceptional. Always be prepared to change course
Depending on the type of investor you are and your strategy, the nature of errors The world is in constant change, and it is perilous for investors to stand still. Knowing
will differ. Once you recognise what the mistakes will look like, life becomes easier. what types of mistakes you are exposed to and recognising them allows you to
Investing in stocks requires making judgments on businesses, while buying index
course correct. In any long-term pursuit, course correcting allows you to move to
funds requires not as much of a thought process. The range of variables and outcomes your destination in a more efficient manner. This means cutting out the weeds in
defer greatly between both sets. In general, the more complexity, the more room your investment portfolio by recognising that your thesis was wrong. Or staying put
for mistakes, such as:
when markets fall, and the headlines make you feel jittery.
Assuming the Current Environment Will Persist A longer form of
this article was
In the middle of a crisis, it’s difficult to look past doom and gloom. Making decisions
during these periods is a common investing error. When financial markets rally, it published as a blog
can seem like the party will never end. When markets crash, the alarm bells ring post on Farnam
louder by the day. Tree’s website (www.
farnamtree.com/
Extreme conditions do warrant heightened attention, and this is true in investing blog). You can read
and otherwise. If there is a fire in the kitchen, next week’s meal plan quickly takes a the full form on the
backseat. The danger is when this causes tunnel vision. Investors panic and sell when website.
markets fall heavily because they cannot see past the current predicament. When
people do this, they frequently sit out the eventual recovery in prices.

MASAL A LITE ISSUE 158 - FEBRUARY 2024