Investing is no easy pursuit. Positive returns reinforce confidence and encourage investors to participate more. Participating in an up market is easy. The real challenge lies in investing in markets when returns are negative. So, how does one do it?
First an investor must make peace with Mr Market. One can make outlier returns only by participating in tougher market phases. When the market is being unreasonable, we must be level headed. Second, investors must embrace cyclicality. Some years reward us with returns, others with opportunities. Knowing how to respond to what the market offers is an art. Third, behaviour must become more conscious and less reflexive. There’s an urgency to abandon plans in falling markets – whether it’s the tendency to hold on to losers, blindly investing, or trying to catch the market bottom. All these behaviours are counterproductive to long term wealth creation. A more thoughtful and disciplined approach will be a winning strategy.
On the face of it, a year of negative returns can seem like a setback. But seeds are planted in tough years. One must look forward to returns rather than expect it immediately.