When the market crashes, advisors will say: “Yeah, you’re down 45 percent, but the index is down 56 percent! We’re actually doing well, relatively. The market will go up long term, and you’ll make your money back.”
They’ll tell you, “You just have to deal with this.” They make you believe that it’s “part of the game,” that this is normal and happens to every investor.
The truth is of course, you don’t have to deal with this, because your money should have been out of the market.
The “experts” are lying to you especially if you hand your money to someone without skin in the game, because they have a different agenda—they want commissions.
Year after year majority of mutual fund managers are fooling innocent retailers.
S&P Dow Jones Indices compiles a report on active fund performance versus benchmarks over various periods, from 1 to 10 years.
The report for December 2019 , the latest available, showed that only 35% of large-cap funds managed to beat their benchmark indices over the last 10 years.
souce- livemint
Their logic is simple
If you made money, we are the reason
If you lose money feel free to chose from our laundry list of excuses for why it was a difficult and why next year will surely be different.
A team of psychologists in Berlin studied violin students. Specifically, they studied their practice habits. All the violinists had begun playing at roughly five years of age with similar practice times.
However, at age eight, practice times began to diverge. By age twenty, the elite performers averaged more than 10,000 hours of practice each, while the less able performers had only 4,000 hours of practice.
The psychologists found a direct statistical relationship
between hours of practice and achievement. No shortcuts. The elite had more than double the practice hours of the less capable performers.
You must know your risk tolerance. Truth is it’s lower than you think.
If you try and guess your risk tolerance, you’ll be wrong. You can’t know until you’ve visualized losing money intensely, or ideally, actually lost money.
Think you can handle a 30 percent drawdown? You’ll almost certainly feel uncomfortable at 15 percent,
losing sleep, wanting to override your strategy.
Good news is that’s normal.
We have already experienced it while planning to diet / study / joining gym etc.
We continue to fail as long as we plan by overestimating our delayed gratification tolerance.
Big firms favourite saying is , “The market always goes up in the long run.” But as anyone who has witnessed the market’s multiple crashes knows, the market inevitably
sees big drops, and it doesn’t always recover.
This was exactly the case in both 1929 and 2008, and the results were disastrous. The 1929 crash led to a bear market that continued until 1932. If we assume that people started to invest at the equity high (~380),
they would have seen a drawdown of 88 percent, and
it would have taken twenty-five years for them to fully recover their losses. Of course, most people wouldn’t have the patience to wait twentyfive years.
When you don’t have a complete strategy that prepares for bad times, your emotional state will dictate your decisions.
@theBuoyantMan These are few harsh realities
1.The moment you took a loan, a lumpsum of interest+ principal is calculated and whatever emi we pay is reduced from total (technically only interest) so that prepayment doesnt affect banks. for eg
principal=100 and interest =100 for 10 years with
@theBuoyantMan 20 per year emi. if you repay 100 rupees in first year, we think bank reduces from principal too. but no they calculate as 200-100=100 still pending from customer. in short never prepay loan !
2. never pay emi on last date. pay 1 week prior. even if you pay emi and due to some
@theBuoyantMan banking error (server down to dumb staff) the transaction is not processed, bank will consider as you have delayed and issue penalty to you. If its staff error they will hide it and let penalty accumulate. You will realize it only when you think full repayment has done and still
When it comes to exits, all traders fit into one of two camps, fixed target or trailing stoploss.
The easiest way to determine which camp you fall into is to think about your answer to this question
Is it more important for you to have a high win rate ?
or
is it more important for you to have huge winning trades?
Fixed targets may have a high percentage of winners, but the average winning trade will probably be relatively small.
Trailing stoploss have most trades ending up as losing trades, or break-even trades, but the few giant winning trades will make up for these losing trades.