Your money: Train your mind & inculcate discipline for wealth creation

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December 11, 2015 12:25 AM

The stock markets react to news swiftly. Many a times, it moves in anticipation of announcements like interest rate changes by central banks.

The information overload which we have at our disposal is both a boon and a bane. It depends on how you use it. As an investor, you have access to tonnes of information available through multiple channels. The deluge of information can make you do multiple activities, which could cloud your actions. So, are the elements of activity affecting the actions you would want to execute. Is ‘activity’ and ‘action’, the same thing?

The game
The stock markets react to news swiftly. Many a times, it moves in anticipation of announcements like interest rate changes by central banks. Investors should not take positions based on any anticipation and second guess. It can harm one’s portfolio in the long run. It is very important for you as investor to conserve your energy and focus on wealth creation.

The human mind is programmed to think that an activity means work. But it can be considered as work and progress only if it is improving your current situation. Many investors look to people for tips or guidance and based on the information, the transactions are executed. You brain gets a high, because a signal is generated that an activity has been executed. It does not ask, if the particular action or activity was required in the first place?

Now, if the trade did not go as per the laid out tip, then you undertake another to activity – to ‘ load up’ or ‘load down’. This very act of whether to buy or sell drains your mind and consumes your energy . So your kinetic energy is being used in an inefficient manner. Multiple transaction is an activity and not an action. Action includes activity, but all activity is not action.

To train the mind and inculcate discipline are the keys to wealth creation. There is no right method or the ‘holy grail’ for investing. We have success stories of both long-term investors and sharp traders, and even a combination of both.

And what joins them together is that each of them, knew exactly the difference in action and activity.

And to distinguish between action and activity is one of the steps in this regard. One needs to understand that in today’s information age, if the news is out, then be rest assured that early gains have already been skimmed and you could be the last-inline recipient of the information.

Frequent buy, sell, and switch transactions are not action, but activity. It gives you adrenaline, but may not make you a success in the investment journey. Reacting to a news immediately, without analysing the nature and future impact of the news is an activity. However, making a decision, of the same news, post analysing, is action.

So, how do you ensure that you do not fall prey to activity in the investment journey? First, do a thorough independent due diligence, have a checklist of the investment criteria, run the process across other companies in the same sector. Then take a small allocation to monitor the stock in your portfolio and when convinced, take action to either add or reduce, based on the results of the process.

The writer is founder and managing partner of BellWether Advisors LLP

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