Expectation setting is a very intrinsic part of investing. Setting our expectations correctly prepares us better to face market volatility. This is all the more crucial when we exit a hugely productive year of investing. The natural tendency would be to expect a similar year after a hugely successful one.
Investors are conditioned to believe that their investment skills are likely to help them sustain their recent performance. But the markets will always test the temperament of investors far more than they are prepared for.
The challenge now is to reset one’s expectations and reposition one’s investing in a calibrated manner. One should be a few steps ahead of the market and yet not run too far ahead of the market.
This would mean maintaining caution and, at the same time, investing sensibly in a frothy market. This would mean being very selective in our choices, expecting stocks to head lower, recognising the need to buy slowly, and staying prepared to invest in a sharp dip. This requires mental and financial preparation of a far higher order than what was required in 2023. Lowering one’s expectations is the first requisite for every investor. Lengthening the investment horizon is an important priority right now.
An investor who diligently prepares himself will play the year responsibly, deal with his decisions proactively, and utilise opportunity sensibly. Getting one’s expectations right cannot wait, and investors must start preparing in right earnest. 2024 will belong to the better-prepared investors.