Certain investments do not suit your temperament. I would be very uncomfortable investing in a painting worth a million dollars and leave it hanging on my wall. What if my grandson took fancy and scrubbed something on that painting. I don’t understand why somebody will pay be more than a million dollars for the painting for me to make profit out of it. If I don’t understand it, the solution is very simple – I must stay away from it.
I have a client, a top film star who had invested a significant amount in an I.T. startup during the dot com boom when valuation depended upon eye balls and not revenue. The markets had tanked and it was a rare opportunity to buy real blue- chips at a heavy discount due to the bad market sentiment. I was explaining to her my logic of why she should invest in shares and how and why the price will move up. After an hour or so she said “Sukhbir, even if you sit here the full day talking about this gibberish, it will not make sense to me”. So I asked her one question “Will you be able to sleep peacefully at night after investing in the stock market?” She said “No”. The solution is very simple in this case- she must stay away from stock market. Eventually I advised her to invest in real estate and today she is happy with the advice.
There was a time where I had huge exposure to the stock market. Almost 100% of my liquid net worth was invested in the market. Not 100% but may be 90%! As a result one part of my mind was always on the markets. Everyday my portfolio value would swing by Rs 5 to 10 Lakhs. So one day I would make a profit of Rs 10 Lakhs and I would be very happy. Next day I would be down 8 Lakhs and would feel sad. This emotional roller coaster ride was distracting me from my work. Even during working hours I would be looking at the share prices on the computer. I realized that my temperament was not suited for this kind of market any more. The solution was very simple. I sold off all my shares when Sensex was 7,000 (in 2005) and invested in commercial real estate. Today (in 2013) the cumulative rent collected from that property exceeds my original investment and still the property is worth more than the Sensex. So I have no regrets.
I am not saying that investing in the stock exchange is bad. I am just saying that it does not suit my temperament as I am a conservative investor. Moreover, the way it operates today does not give me a feeling of being in control. So I have a very simple solution – I stay away from it.
The best avenue for investment is something that you understand. Then you will believe in it. This conviction will help you tide over difficult times. So invest time in trying to understand your investment avenues and your temperament.
Would you like to share your stories on temperament?
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