The stock market may be considered one of the greatest teachers of life. It goes beyond a marketplace for making material gains; rather it dwells deep in enrooting the meaning of success and failure in one’s life. When one starts investing in the equity market, one comprehends that persistence and dedication beat greed and impatience to attain triumph over the long term.
An important aspect of investing in equity market is the knowledge and acceptance of failure. Throughout the investment horizon, an individual may face certain defeats; however, it becomes crucial to comprehend the reasons and to learn how not replicate such failures.
It is extremely vital to sketch a plan and associate it to a purpose or a goal while investing. This will encourage an investor to stick with the plan and habitually continue to invest in the dream till it’s not achieved. It also makes it easier for the investor to periodically review and rebalance the asset allocation to achieve the goal rather than fall in the trap of greed in the bull cycles.
The most important, yet often disregarded virtue of a rational investor is patience. Short-term volatility can have adverse effects on one’s portfolio and seeing the depreciation in capital value can make innumerable individuals anxious and tense. However, it takes patience and mindfulness to ignore these short term discrepancies and understand the value that can be created in the long term.
- Risk Management
When the markets are in the bull cycle, high optimism of investors encourages unreasonable price gains. If and when the market crashes, the plunge in stock prices can lead to capital erosion. Although the risk cannot be completed eliminated, it can properly be assessed by limiting speculation.
- Overcoming Behavior Biases
As an innate habit, individuals tend to invest more in the bull cycle, when stocks are overpriced and sell in the bear cycle, when stocks are undervalued. However, if an investor learns to prevail over his bias and sees the bear cycle as an opportunity to construct a portfolio by picking stocks at a cheaper price; alpha returns in the long term can be generated.
Another important attribute of investing in equities is persistence. To build an adequate corpus and to achieve financial goals, an individual needs to be determined and systematically continue investing through the stipulated time period. Refraining from investing when the environment is volatile or the markets are pessimistic defeats the entire purpose. One needs to sail through both the extremes of bull and bear cycles in order to succeed.
When it comes to investing, there is no single definite formula for success. Ups and downs are part and parcel of equity markets; bull cycle paves the way for bear cycle and vice versa. This is why it becomes imperative to consider investing as a process and a journey, not a destination by itself. What a rational investor can rather focus on is following a disciplined and meticulous plan which does not deter away from one’s financial goals.