Pain & Pleasure, Loss & Gain!
- Jayesh Gala
- Dec 1, 2017
- 2 min read
Humans are loss averse, that is they hate losses about twice as much as they like gains!
With this in mind, consider the behavior of two participants in markets Viru & Jay. Viru has constant access to information about the value & news of all of his investments and liked to be active in the markets. By habit, at the end of each day, he runs a little program to calculate how much money he has made or lost that day. When Viru loses five thousand rupees in a day he is miserable, about as miserable as he is happy at the end of a day when he gains ten thousand rupees. How does Viru feel about investing in stocks? Very nervous! On a daily basis, stocks keep going up and down, so if you are feeling the pain of losses much more acutely than the pleasure of gains, you will hate investing in stocks.
Now compare Viru with his friend Jay. He has read a fact that "Over a twenty-year period, stocks are almost certain to go up. There is no twenty-year period in history in which stocks have declined in real value, or have been outperformed by debt" With this belief he allocates money to Equity and checks only once in a few years. How will Jay feel about investing in stocks? Quite calm!
The lesson from the story of Jay and Viru is that attitudes toward risk depend on the frequency with which investors monitor their portfolios. As Kenny Rogers advises in his famous song The Gambler “You never count your money when you're sittin' at the table. There'll be time enough for countin' when the dealin's done.” Many investors do not heed this good advice and invest too little of their money in stocks due to risk aversion and pain. I believe this qualifies as a mistake, because if the investors are shown the evidence of almost zero risks in stocks over a long period of time, they would choose to invest their money aggressively in stocks.
There are successful investors and there are also successful traders in the stock market. To be successful, as you expand time horizon the efforts needed in terms of time goes down. Trading requires time, discipline, energy and skills to succeed. Investing for long term is lot easier in comparison, and its my personal belief that easiest way to invest profitably in financial markets for long term is via mutual funds.
Whatever path you choose, never mix trading and investing as the cocktail would probably not taste good. Its advisable to keep trading and investing accounts separate.
There are many ways to treasures and whatever path you choose, may you find success!
Disclaimer :- All investments are subject to the financial and market risk. Investors should re-assess information provided herein before investing. Mutual Funds are subject to market risk. Past performance may not be sustained in future.
