Today, we are living in a very fluid world and information on various subjects is available in an instant. Instant news, instant food, instant money transfer—quite a few things are instant. And in the midst of all things instant, we are told that patience is the key. While the world is impatient, patience is the key in the investing journey for wealth creation. And that’s where you need to have Emotional Quotient (EQ).
In fact, EQ is how you as an individual recognise your emotions along with those around you and use the emotions and feelings to guide your thinking and behaviour. That isn’t easy as following the herd is the easier way out.
As an investor and a human being, our mind says that it is fine to fail collectively. But it takes self-belief and mental strength to take the course away from the herd and succeed.
Method in investing
If you have been a direct equity investor, the periods between December 2014 and December 2016 have been very testing. The Sensex has delivered negative returns over the past two years and fixed income delivered positive returns. In direct equity, it is the individual’s stock picking which matters.
So, in order to get the EQ to work for you, begin with the basics. It is important to try to know your investment decisions and the investing journey, Do maintain an investment journal in which you note when the investment was executed, the process behind choosing the investment product and the time horizon. Also note the emotional set-up and markets movement when the investment was carried out. Also, do note down major events like demonetisation, Brexit and US presidential polls.
Keep a note of your pre- and post-investment thought process and how they relate to the real market results.
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As an equity investor, if you participated in the investing journey over a period of time either directly or through mutual funds, you would have witnessed volatility in the portfolio and a sustained period of portfolio non-performance. Regularly check your portfolio and your actions taken. If the journal was maintained, a few of the decisions taken by you would not have been executed and you would not have repeated the mistakes.
In the quest for maximum possible return, people follow the herd. It is one of the the reasons for disappointing returns. Knowing your self and the reason for owning an investment is the elementary framework on which you can build the structure for a successful long-term investment journey.
The writer is founder and managing partner of BellWether Advisors LLP