The hits and misses of investing

In the context of Investment for individual investors, Perfection is when Individual investor has achieved desired goal of realising returns while facing the tides of risk and preserving capital. Investments are subject to market risk. Every investor is advised to study and analyse the investment product / option in detail before choosing their preferred investment. In the language of cricket, let’s not miss hitting perfect shots when it comes to investing.

Here is a brief on the misses and hits when investing funds in various investment products, bearing in mind that the investor is embarking on a risky journey ahead.

Emotion vs patience

Investment requires adequate patience and investors need to leave their emotions behind when dealing with investment products. As the sailors face the tide while in the sea, investors need to wither the volatility tide (market volatility) and stay put while evaluating performance of the overall investment portfolio and rebalancing it from time to time. Taking an emotional call at a point in time, without detailed analysis, may not be a wise move and the investor may end up regretting it later. Patience is the key, provided the investor has clear understanding of investment that is backed by detailed analysis.

High quality at fair price vs fair quality at high price

As a first step, rather than diving into the ocean straight away, Investors need to identify high quality asset from the pool of investment products available and shortlist these choices. Next step is to consider price band for entry. Patiently waiting with capital in hand to buy a high-quality investment in the desired price band is wise rather than deploying funds available immediately and then regretting buying an investment at a higher price. Financial Markets open and close every working day. Always keep an eye on the price movement and enter when prices are in the range that you have marked. Just because an asset traded higher earlier and the price has dropped does not mean that the opportunity has come, unless this investment option is among the list of shortlisted investment options and the pricing is within the price band planned earlier. Ultimately Quality and Price, both matters.

Noise vs analysis

There is a famous proverb, “buy the rumour, sell the news”. Post 2020 downside, there is a massive rise in retail investors participation in financial markets and a plethora of analysis is available on the world wide web, be it free or paid, for investors to review. It is the investors themselves who need to distinguish between noise vs analysis and review chosen analysis, that may serve as mere guidance, not an opinion. Nothing stated in the analysis should be considered as guarantee and 100 % perfect. At times, the disclaimer statement in such analysis is longer than the conclusion. “my money, my analysis, my call, should be mantra and philosophy. Lack of understanding an investment product is a clear reason to stay away. Better understanding facilitates better analysis and lack of understanding creates more confusion and stress. Merely investing based on someone’s tip or recommendation without understanding inherent risks and limitations is the first step to an eventual downside.

Immediate vs periodic

Investment grows with time. There is a gestation period involved when dealing with investments. Investing today and expecting returns tomorrow, at lightning speed, is like a dream, that may not come true. Markets have their own way of movement and individual investors cannot influence this wave of movement. Rather than reviewing performance daily, investors need to spend adequate time at periodic intervals and review overall investment portfolio performance.

Risk vs reward

Risk is not the wider fluctuation in prices (generally termed as volatility) but loss of capital when investors are not able to take a call while investing in risky assets. Risk appetite differs from individual to individual. Age is one of the criteria to be considered, higher the age lower the risk appetite. Ideally, Investors should define risk appetite vs expected rewards before proceeding ahead with the investment. There is no reward in terms of returns without considering risk. The word “guaranteed return” seldom used by companies offering investment products off late, has certain inbuilt caveats and investors are advised to review the underlying risk and assumptions clearly before placing funds for investment.

Open ended vs defined target

Investors expectation is to earn return from investments. These returns will come over time. However, investors need to peg the expected target for returns while staying invested. Not all investments may be held for a longer period. Investors need to compartmentalise investments that could be held for a longer period vs investment that could be cashed upon once targeted returns are achieved. Even if investments are to be held for a longer period, there are chances of U turn in price movement (from upside to downside) depending upon factors that influence performance of investment. It is at this point that the investors need to choose whether to stay put or exit.

Rigidity vs agility

Rigidity comes from being hopeful that the tide will turn in favour of the investor, just to console one’s mind and heart while ignoring the prevailing factors in world markets which may be working to the contrary. Agility is the key for investment. When investments reach a certain level, be it up or down, investors need to take a call, either way, and implement this decision. It is better to take a decision at an early stage rather than regretting it later.

Profit on paper vs profit in pocket

Several factors influence the overall price movement of investment products. If investments are held for a certain time frame with targeted returns, investors are advised to cash in these returns once the target is achieved and reinvest funds in other products to continue this journey of growing wealth. Ultimately, preservation of capital is the key and profits in pocket is always better than profits on paper.

Loss vs profit

Whilst investors embrace profits happily, there may be losses at times. Investment is always subject to risk and at times. Worry is not a solution, pragmatic thought process and detailed evaluation to circumvent the risk is the preferred option when investing funds. Not all investments would generate a targeted return within the targeted time frame without any risk. Returns is like a graph that has curvatures all along the path. It is not a straight line from zero flying up to a point of defined percentage return. Always review the performance of overall investment portfolio and take a call, be it profit or loss. Pay adequate attention when investments are not performing as per expectations. Embrace lesser losses rather than waiting for the losses to mount to an extent that blows off capital.

Fear vs greed

A famous proverb “buy the fear, sell the greed” is aptly suited for financial markets. Veteran investors have also followed this mantra and moved in when the markets have been sliding down and eventually exited when markets have been rallying. Certain financial markets also have fear and greed index to track market sentiment. Moving in at a time when there is extreme fear in the markets requires extreme patience and a higher risk appetite. Risk appetite rises with experience and patience.

Chance vs opportunity

Chance involves luck rather than preparation. Retail investors always have the tenancy of moving in when the noise is at peak and the investor is gripped with Fear of Missing Out (FOMO). Remember, retail investor is always at the fag end of the queue and the news coming in have already been digested and factored in the pricing of the investment visible when news is at its peak. Opportunity in terms of identifying high quality assets and defining price band is a key and such observation comes from analysis. Investors can spot such opportunities with detailed analysis while maintaining patience and holding funds ready to be deployed. Taking a chance without spotting opportunity is a risky bet, prone to downside rather than upside. Generating returns is not magic but a risky affair that requires patience and observation.

Wishing the readers, the very best for their journey of growing wealth, safely and steadily.

The writer is CEO of ZTI Global.

• Business