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successfull investor

How to Cultivate the Right Mindset to be a Successful Investor?

by Holistic 1 Comment | Filed Under: Investments

The investor and his mind

Sigmund Freud made a name for himself by interpreting dreams through the use of his knowledge of psychoanalysis. He succeeded in deciphering the various quirks inside the human brain which influenced their behavior. Had Freud tried to interpret the dreams of investors, perhaps a new dimension could have been added to the subject of investor behavior.

Freud did not entirely dishearten though, he had indeed dwelt on the subject. People, over the years, have used his studies for various reasons like the exploration of the causes behind the global economic collapse and the general understanding of the subtleties of behavioural finance.

Investment consultants and financial pundits have not only tried to understand the vagaries of the money market, they have also devoted considerable time and attention to investor behaviour study. Both have been equally volatile and predictably unpredictable.

This article seeks to take a peek into the investor’s mind and also strives to make readers aware about those behavioral patterns which can be detrimental to their financial wealth. Emotions are an integral part of our behaviour and it is no different for investors.

The commotion caused by emotion

Emotions often lead to a situation where the investor deviates from the pragmatic route and acts contrary to their natural self. Their mood swings are influenced by greed and headstrong decisions. When things look rosy, investors’ rush in to encash the bonanzas, on the flip side, when the markets are glum, they withdraw into their shell.

Another common investor behavior pattern, commonly referred to as the ‘herd behavior’, is about trying to emulate others who have made more money in the market. However, the prudent investor is one who follows the dictum of Rabindranath tagore ‘ekla chalo re’ which means that ‘… at times people have to traverse the path alone..’. These investors move ahead due to their single minded determination and aversion to being swayed by emotions.

Investors who come up winners against odds tend to study the market carefully, they gather a fair idea from the signs in the market- whether investment at a particular point of time is conducive or not, if the lenders and general investors are showing eagerness and other factors like ease of entry of new funds and widths of credit spreads.

‘Too much of anything is bad’- it is said, and this perception holds for investors too. The height of both optimism and pessimism can lead to situations which can lead to monetary loss in one hand and loss of opportunities on the other hand.

The Science of Prudence

Financial prudence is something which cannot be quantified, it has to be observed and assessed. The economic crisis of 2008 was preceded by activities indulged in by investors which reflected high levels of risk propensity and low levels of prudence.

In this context, Warren Buffet’s words reflect his wisdom “The less prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own affairs”. It is not without reason that Buffet is considered to be one of the most successful investors of our times.

Risk aversion is a behavioral phenomena which is not constant. It is linked to a lot of extraneous factors and investors need to carefully weigh all the options before arriving at a decision, be it a buy or sell decision. High risk aversion could result in a lot of good ‘buy’ opportunities go untouched and low risk aversion could lead to purchases which turn out to be catastrophic.

The mystery of history

“Where is the knowledge we have lost in information?”, lamented noted poet T S Eliot. This is indeed true, even Albert Einstein stated that “The only source of knowledge is experience” and “Information is not knowledge”.

We often tend to miss the greater picture by directing our attention towards bits of information, which can be utterly misleading. The totality of an event can only be known by becoming aware of its history.

“Those who forget their history are condemned to repeat them”- is an axiomatic statement which has been endorsed in history. The sequence of events leading to a major economic downturn can slowly fade from memory as the gap between such events sometimes span over decades.

However, for a serious investor, it is imperative to remember such instances and draw from its experience and knowledge. However, the moot point remains that even though investors possess the necessary knowledge they tend to act more out of their faith and belief. What they know to be true in most cases turn out to be untrue.

It is more about that fact that people believe what they want to believe and that could be anything but the truth. The devil in the mind raises its head and overshadows logic and prudence, greed takes over and leads the investor astray.

‘Safety’ to ‘growth’, a poorly traversed road

Elasticity and volatility have much in common. It can stretch either way. Market volatility can reach for the stars and head towards the pit depending on the economic situation.

Equities and investments in equities are a fairly recent phenomena and has been around for about 65 years or so. After a sluggish take off, equities gained momentum between 1960 and 1972 , and then again between 1982 to 1999.

After its initial popularity, the inevitable happened, a plethora of equity in the market led to a saturation. Equity performances nose dived, prices reverse spiraled rapidly and the investor’s spirit took a beating leading to a loss of interest in equities. This was triggered in 2000.

The situation hardly improved during the next three year period and people began to abandon equities for more secure investment options. There was a paradigm shift from the previous drive for ‘growth’ to a more sedate “safety and income” stance.

Investors ignored equities between 2000 to 2003. During 2003 stock market started recovering slowly. Any thing which slowly grows will not capture the attention. Investors continue to ignore this slow growth in 2003 and 2004. Only in 2005 when stock market rised sizably, investors started noticing it and started investing in it. They have missed the initial rally in the market.

Instead of swinging between safety and growth, investors need to determine an asset allocation ratio based on their risk appetite and required rate of return. They need to stick to this asset allocation ratio regardless of the crash or rise in the stock market. This will reduce their overall risk and build their wealth.

If you could practice the above steps that will help you cultivate the right mindset to be a successful investor.
Also, to be a successful long term investor, having a well drafted financial plan will be of immense help. To create a sound financial plan, I strongly recommend you to take advantage of

 
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Comments

  1. Amar says

    January 1, 2014 at 4:43 am

    Thanks very nice blog!

    Reply

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Jey S
Jey S
24. September, 2021.
I have been using Holistic Investment Planners for the last three years. Mr. Srinivasavaradhan answered all my questions and doubts very patiently during the first free consultation. I was able to clearly define my short-, medium- and long-term goals once I signed up for the comprehensive plan and got their investment plan suggestion to achieve my goals. They are very polite and highly professional whenever I contact them for any queries or make investments. They never pressurize you to invest on their recommended financial products. I would have been lost money by investing directly without their help since I do not have time and knowledge about different financial products. Risk planning is also done as part of financial planning. Truly, they are holistic planners when it comes to your financial planning. They help you to define your life goals, understand your financial resources and establish a plan to invest towards reaching those goals. They do review your plan as you progress to make sure that you are on correct path to achieve those goals. Kudos to the team and keep up the good work!!! I am happy that I found holistic investment planners for my financial planning and management.
aksaswadkar
aksaswadkar
24. September, 2021.
I was about to retire and really not understanding how to invest money to have financial freedom and fulfilling my goals. Was desperately searching on internet way out and fortunately came across Holistic Investment Planners. I read number of articles on their website and realized that this is the agency which I want and engaged their services for my retirement planning. It is an excellent experience to be associated with Holistic. Right from day one our interaction was fantastic and they gave me such a wonderful plan that I had never imagined. I am fortunate enough to be in the client list of Holistic. I have recommended Holistic to my friends as well.
Lionel Faber
Lionel Faber
16. September, 2021.
I've been availing their services for the past year. They are highly knowledgeable in the field and are very patient with all doubts and queries. Personalized financial planning is provided keeping your short term, medium term and long term goals in mind. They do not pressurize you to purchase schemes of their choice. They provide their input and suggestions and leave the decision up to you which shows their honesty and high principle.
Sridhar
Sridhar
8. September, 2021.
Financial planning brings peace in life. Holistic Investment have supported in arriving financial plan based on future goals. My investments are regular since then. They are professionals in their business, will recommend others.
Nitesh Agrawal
Nitesh Agrawal
6. September, 2021.
I have been using Holistic Investment Planners from last one year. The journey has been fantastic. Being a finance person myself I always thought we can look after and plan own finances also. However, due to lack of time and deciplain the things are not always as desired. After joining with Holistic Investment for the first time Icame to know the Financial goals and quantified them. Some dreams were unrealistic based on the earnings and savings so had a reality check. Also got the information and deciplain of investing on regular and more rewarding securities. I definetly suggest to use Holistic Investment Planners. They are professionals, available and hear youor full story before presenting plans. They are flexile in the sense if there are some urgent deviations required, they help to plan the same. For all professionals/individuals I would suggest using professional help of Holistic Investment Planners for best results in long term investment and financial goals achivements. Last advise will be to start early in your life. It really pays well to start in the beginning itself else the dreams needs to adjust :)
Swetha Vasanth
Swetha Vasanth
6. September, 2021.
This is my first year service with the Holistic Team and I would say that they are very much helpful in creating a financial plan and follow ups during the year. I would definitely suggest them if anyone who is willing to proceed with their savings professionally.
Joseph Mathias
Joseph Mathias
6. September, 2021.
I came to know about Holistic Investment Planners online while searching for different investment ideas. Once I contacted them the journey was very smooth. Mr. Ramalingam explained all the aspects of Financial planning in detail and it opened my mind. I realized how important it is to have a Financial planning. Mr. Rajan suggested all the requirements as per my goals and made a Investment plan keeping in mind of my goals. I started my Investment journey with them. I wish I had done it some years back then it would have been in a different level. Review meetings were held every six month to check the implementation of the plan and check the results as per the requirements and to check if any changes required. Overall it was a good experience with Holistic Investment team and would like to continue in the years to come.
Srinvas Kannan
Srinvas Kannan
30. July, 2021.
I came across Holistic investment planners almost 5-6 years back, but I did not have the trust since I had met a few of them who did not sound promising. Then I started investing through a financial advisor of my friend. After 4 years of investing the returns were very low. I was disappointed and started looking for financial advisors when I came across Holistic investment. I had a detailed discussion about my goals and the way they would approach achieving my goal before deciding to switch my investments to them. After a thorough analysis of my then existing portfolios, they suggested new ones and we zeroed-in on 6 schemes/funds where our investment would be split. I am glad I made the decision of switching over and taking Holistic planner's advise, my returns are handsome and I only wish I could have taken their help/advise 5 years back itself. Neverthless, I would like to recommend their services for investment and financial advise if someone is serious about their investments.
Shivaram Andiappan Selvaraj
Shivaram Andiappan Selvaraj
3. July, 2021.
I got a free first time consultation. I got my doubts resolved. They also gave additional advises for investment planning which was also useful.
Nellai B
Nellai B
26. June, 2021.
I have been associated with them for the past three years. They are very professional and polite in answering all our questions. I have complete trust in their suggestions. I strongly recommend for anyone. I am looking forward to have strong and successful association with them.
Google rating score: 4.4 of 5,
based on 61 reviews

Google Reviews

Jey S
Jey S
24. September, 2021.
I have been using Holistic Investment Planners for the last three years. Mr. Srinivasavaradhan answered all my questions and doubts very patiently during the first free consultation. I was able to clearly define my short-, medium- and long-term goals once I signed up for the comprehensive plan and got their investment plan suggestion to achieve my goals. They are very polite and highly professional whenever I contact them for any queries or make investments. They never pressurize you to invest on their recommended financial products. I would have been lost money by investing directly without their help since I do not have time and knowledge about different financial products. Risk planning is also done as part of financial planning. Truly, they are holistic planners when it comes to your financial planning. They help you to define your life goals, understand your financial resources and establish a plan to invest towards reaching those goals. They do review your plan as you progress to make sure that you are on correct path to achieve those goals. Kudos to the team and keep up the good work!!! I am happy that I found holistic investment planners for my financial planning and management.
aksaswadkar
aksaswadkar
24. September, 2021.
I was about to retire and really not understanding how to invest money to have financial freedom and fulfilling my goals. Was desperately searching on internet way out and fortunately came across Holistic Investment Planners. I read number of articles on their website and realized that this is the agency which I want and engaged their services for my retirement planning. It is an excellent experience to be associated with Holistic. Right from day one our interaction was fantastic and they gave me such a wonderful plan that I had never imagined. I am fortunate enough to be in the client list of Holistic. I have recommended Holistic to my friends as well.
Lionel Faber
Lionel Faber
16. September, 2021.
I've been availing their services for the past year. They are highly knowledgeable in the field and are very patient with all doubts and queries. Personalized financial planning is provided keeping your short term, medium term and long term goals in mind. They do not pressurize you to purchase schemes of their choice. They provide their input and suggestions and leave the decision up to you which shows their honesty and high principle.
Sridhar
Sridhar
8. September, 2021.
Financial planning brings peace in life. Holistic Investment have supported in arriving financial plan based on future goals. My investments are regular since then. They are professionals in their business, will recommend others.
Nitesh Agrawal
Nitesh Agrawal
6. September, 2021.
I have been using Holistic Investment Planners from last one year. The journey has been fantastic. Being a finance person myself I always thought we can look after and plan own finances also. However, due to lack of time and deciplain the things are not always as desired. After joining with Holistic Investment for the first time Icame to know the Financial goals and quantified them. Some dreams were unrealistic based on the earnings and savings so had a reality check. Also got the information and deciplain of investing on regular and more rewarding securities. I definetly suggest to use Holistic Investment Planners. They are professionals, available and hear youor full story before presenting plans. They are flexile in the sense if there are some urgent deviations required, they help to plan the same. For all professionals/individuals I would suggest using professional help of Holistic Investment Planners for best results in long term investment and financial goals achivements. Last advise will be to start early in your life. It really pays well to start in the beginning itself else the dreams needs to adjust :)
Swetha Vasanth
Swetha Vasanth
6. September, 2021.
This is my first year service with the Holistic Team and I would say that they are very much helpful in creating a financial plan and follow ups during the year. I would definitely suggest them if anyone who is willing to proceed with their savings professionally.
Joseph Mathias
Joseph Mathias
6. September, 2021.
I came to know about Holistic Investment Planners online while searching for different investment ideas. Once I contacted them the journey was very smooth. Mr. Ramalingam explained all the aspects of Financial planning in detail and it opened my mind. I realized how important it is to have a Financial planning. Mr. Rajan suggested all the requirements as per my goals and made a Investment plan keeping in mind of my goals. I started my Investment journey with them. I wish I had done it some years back then it would have been in a different level. Review meetings were held every six month to check the implementation of the plan and check the results as per the requirements and to check if any changes required. Overall it was a good experience with Holistic Investment team and would like to continue in the years to come.
Srinvas Kannan
Srinvas Kannan
30. July, 2021.
I came across Holistic investment planners almost 5-6 years back, but I did not have the trust since I had met a few of them who did not sound promising. Then I started investing through a financial advisor of my friend. After 4 years of investing the returns were very low. I was disappointed and started looking for financial advisors when I came across Holistic investment. I had a detailed discussion about my goals and the way they would approach achieving my goal before deciding to switch my investments to them. After a thorough analysis of my then existing portfolios, they suggested new ones and we zeroed-in on 6 schemes/funds where our investment would be split. I am glad I made the decision of switching over and taking Holistic planner's advise, my returns are handsome and I only wish I could have taken their help/advise 5 years back itself. Neverthless, I would like to recommend their services for investment and financial advise if someone is serious about their investments.
Shivaram Andiappan Selvaraj
Shivaram Andiappan Selvaraj
3. July, 2021.
I got a free first time consultation. I got my doubts resolved. They also gave additional advises for investment planning which was also useful.
Nellai B
Nellai B
26. June, 2021.
I have been associated with them for the past three years. They are very professional and polite in answering all our questions. I have complete trust in their suggestions. I strongly recommend for anyone. I am looking forward to have strong and successful association with them.
Google rating score: 4.4 of 5,
based on 61 reviews

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