Thread by @arun_kumar_r

1. One of the biggest issues in equity investing in India, is that most of us are anchored to the 15%+ returns.

2. The moment short term returns are lower or negative, we guess something is broken and panic out of the markets..

3. Unlike a fitness program, where we know it takes a lot of hard work for results, when it comes to returns from equities, we take them for granted.

4. The "not so easy part" of making returns is unfortunately also "not so obvious". The "not so easy part" in a not so easy jargon is called "RISK"

5. Since RISK remains a vague and confusing term, there is a huge expectation mismatch between the risk that we can handle in the short term and the long term returns which we expect from our portfolio.

6. While long term is where we want to focus on, psychologically, all of us are investing for a large number of much shorter time periods. If we are not able to manage the short run then the long run is a useless target.

7. It's high time we started communicating RISK in a manner which all of us can intuitively understand and help us stick through a manageable range of short term ups and downs.

8. How much risk are you comfortable having?
Find out "what is the maximum decline you are ok to tolerate in a 6 month period beyond which you may find it extremely difficult to hang on to your portfolio"- this is what is referred to as your risk tolerance.

9. How much risk do you currently have in your portfolio?
For your asset allocation, find out what is the normal return range in which the portfolio moves around in a 6 month period i.e 95% probability of 6 month returns being in this range (refer the blog post)

10. There are obviously 5% black swan outlier events which we can't quantify (think 2008 crisis). But the key is this - we can control the risk in the 95% probability range.

11. Align your portfolio, based your risk tolerance rather than return expectations.

12. Returns are made in the long run while risk is handled in the short run. Remember all long-term investors are made, one short term decision at a time.

13.Have you got your short term risk in control?
eightytwentyinvestor.com/2019/02/26/bec…