21 Dec 2019 by Research and Ranking
The Art of Not Doing Anything When Everyone is Running

Probably, the best stress-buster I have in my life is spending time with my 9-year-old cousin sister Pihu. On a recent Sunday evening when I went to see her, she came to me excitedly and said, “See bhaiyya, I got orbeez.”

Orbeez beads are small colourful beads that when soaked in water for 4-6 hours grows by about 100 times as compared to their original size. Kids then use these orbeez beads to decorate flower vase, bowls, etc.

I took part in her excitement and said, “Let’s soak in the water now.”

As we soaked the beads, I saw Pihu getting restless and checking orbeez every 15-20 minutes. Like most kids of her age, she wanted to see immediate results of her thrill.

I tried to tell her, “Pihu, all you need to do is give it time. Leave it aside for few hours. Trust me, it will grow!” 

“Didi, I have to check whether it is growing.”

Unfortunately, all my efforts could not match her excitement as she kept fidgeting with orbeez beads. The end result: The beads did not grow enough as it should have, and disappointed Pihu, blamed it on the quality of the beads.

“Pihu, you got to be a little patient to see the results,” I tried to explain her.

As I said this to her, I realized, it’s not just Pihu or kids belonging to that generation. We adults as well fail at staying patient. We often tend to act, even when staying patient is all we need to do.

When it comes to the stock market, as per the Global Investor Study conducted by Schroders Investment Management, the results say that many investors share the common trait of impatience while investing in the stock market, with an average holding period of not more than three years. The study further stated that investors aged 18 to 35 expect a minimum return of 10.2%, but are willing to hold investment only for 1.5 years. Now, frequent churning dampens portfolio returns after considering the Short-term capital gains tax, transaction charges, brokerage, etc. Not that one should buy and forget, the winning ingredient lies in rebalancing portfolio, only if required.

While advising Indian investors, I see a common trend- they find it awfully painstaking not to hit the green or red button during volatile times.

During our 4th Elite Club Conclave, I met one investor who told me that even though he knew the stock was fundamentally solid and shall rebound when the markets recover, he could just not prevent himself from selling the stock during the times of transient downfall.

So irrespective of how much we say in our emails, blogs, conclaves or brochures, investors find it difficult to stay calm, remain patient and trust their research and time to see their wealth grow. When the market shows their mood swings, investors too act illogical, go on irrational buying and selling, which makes investor lose the two most important resource of their lives. That is both – ‘time’ and ‘money.’

Why investors find it challenging to not act?

  • It’s difficult to invest regularly, without getting impatient or getting diverted from short-term gains.
  • Most often, investors tend to exit from temporarily underperforming stocks and invest in stocks that have performed well in the recent past. This results to buy high and sell low, the complete opposite of buy low and sell high strategy to generate long-term results.
  • Biases such as recency bias, loss aversion bias, anchoring bias, bandwagon bias, and confirmation bias are hard-wired in human’s response. Read more about biases here. To stay away from these biases, you have to continuously fight with the mind that is trained to respond on the basis of these biases.

So how to remain patient?

  • Be aware of your own behaviour

For e.g., if you see a car going in a north direction, you’ll continue to assume that it will continue to go in the north. However, if the car goes in the south direction, subconsciously you’ll believe that car will continue the route towards the south. Such beliefs lead toward wrong investment decisions. 

  • Don’t predict, rather prepare

Predicting the future triggers fear, which again leads to anxiety and impulsive decisions. Stop predicting the future, stay in the present, and concentrate on what is happening. Now this philosophy works everywhere – living life happily or building wealth holistically.

  • Don’t compare yourself with others

You may hear stories of quick returns from your friends, neighbor or even colleagues, but hold on before you compare your gains with others! Each investor has a unique goal, risk appetite, investing style, investment horizon. Hence, it’s obvious the journey would also be different.

Patience is a big virtue, not just in the stock market, but everywhere. Be it companies or investors, focusing on short-term gains may deter your long-term results, thus minimizing the returns and maximizing risks on your portfolio.

Just remember this – Sometimes the best action can be not taking action at all! Difficult, but works wonders.

Since you’ve reached till the end of this story without taking any action and staying patient to see your knowledge grow, it’s time to help others as well to grow their knowledge.

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