When the markets stay irrational longer than anyone predicted, it poses a challenge to the investors seeking sanity in the markets. They are at a loss on what to do with existing holdings, where to invest incremental savings, and how to manage asset allocation. Selling one expensive asset class and buying another asset class hardly makes sense. So, switching from equity to real estate, or vice versa, hardly makes much sense.
Blindly investing incremental savings in expensive parts of equity is too risky to even be considered. Discretion of a very high order is needed in equity investing. While there will be a few stocks in every bull run that are undervalued, the significant part of the equity market universe seems valued fairly. This is a tough market for stock picking and yet most people believe excessively in their own skills in beating the adverse environment.
When we turn a market situation into a personal ego trip, we will be setting ourselves up for something unpleasant. This is very avoidable and there is always a saner path as an alternative option. That path would need us to improve our behaviour significantly. By improving our behaviour, we can control our FOMO effectively, invest very selectively only where we see the value and improve our asset allocation. By doing so, we will be improving our financial standing, moderating risks and reducing the downside.
As an added bonus, we will be ready to position ourselves better to take full advantage of opportunities that deliver future upside when they show up.
