Key idea
Markets do not lose you money nearly as often as your own reactions to them do. The main risk in your portfolio is you.
It is tempting to blame markets, managers, or bad luck for poor results. But for most long-term investors, the single biggest threat to their wealth is their own decision-making under emotion. The mirror holds the real risk.
The two emotions that do the damage
Greed (when markets rise)
- Chasing what already went up
- Taking on too much risk
- Ignoring the plan for a hot bet
- Buying at the top
Fear (when markets fall)
- Panicking at paper losses
- Selling to 'stop the pain'
- Abandoning the plan
- Selling at the bottom
Why knowing this is power
You cannot remove these emotions, they are human, but you can build systems that stop them from driving your decisions. Automation (SIPs), a written plan, and simply understanding your own patterns are how disciplined investors protect themselves from their own worst moments. Recognising the enemy is the first step to managing it.
Finished reading?
Marking this complete counts today, and your streak becomes day 1.