Do you know, we all have a shield or attention filter between the world and our brain. This shield protects us against the noise of the world, without it we would constantly be bombarded with so much of information overload. However, this filter also allows us to pay attention to dramatic information and routine / normal information just passes through without any reaction in the mind.
Every time you read news papers, watch news channels, go thru videos, articles on social networking sites most of them talk about sensational negatives happening around us. Does this mean in the world everywhere only negative things are happening and there is no progress?? This is because, your shield is filtering only this information and making you think and worry about the surroundings.
Media can’t waste time on reporting stories that won’t pass through your attention. They cannot report that weather yesterday was normal, diseases are in control, there are no violence / thefts anywhere. These won’t catch your attention. No one would want to report any developments that are happening since these developments are slow in nature and takes a very long time to actually experience progress, while any disasters / damages are immediate in nature and explicitly visible immediately.
For example, when in your city, roads are under construction, you will be most of the time having this discussion that its too painful to commute and it takes long time to reach etc, however you won’t discuss the ease of commuting when the roads are easy and free. Basic human psychology is to accept the comforts / easy developments as part of life and not to be discussed as a major event, however any hurdle, pain always been highlighted and discussed at every possible forum.
These Roads are broken and repair work is on for the betterment of the city and for the benefit of people. This process does take time yet it is painful during the process. Will you go away from the city due to these temporary issues or will you bear the pain and wait for betterment?
Take another example, when on your mobile phone, internet / data doesn’t work, there is this conversation all the time that these networks are not providing proper service, but do we realize that the internet and mobiles have slowly invaded into our lives in last decade such that access to internet is now like a necessity of life. We don’t talk much about this development but we pay a lot of attention to poor service and inconvenience.
Now just think, how this shield/filters affect your investment decisions. The moment everything is going on fine in the country and stock market is doing good, banking system is robust, businesses are growing, people in general are happy and excited. This is the phase where every one of us is happy to explore different asset class of investments. However one correction, one failure, the entire information and data flow will make you feel the world is coming to an end and makes you feel that you made a wrong investment choice. In such scenarios, mind will trigger emotions to exit and avoid further losses. Is it right to react to emotions and take investment decisions?
No. Then, what are we supposed to do?? Manage emotions. How? Whenever you come across such situation, remind yourself to be of factfulness. What does it mean? It means, to recognize and read the facts and understand the fears. Be aware that frightening things get our attention and remembering that these things are not necessarily the most risky and won’t matter this much in 5 years from now. Our natural fear of loss, makes us sub consciously overestimate the risk.
To control this fear instinct remind yourself of these following points :
Stick to asset allocation at all points of time i.e.,
- maintain emergency funds. Eg : 2 / 3 years expenses
- stay invested in debt funds for next 3-5 year’s requirements.
- Continue investments into equity funds for long term goals i.e. for the requirements of more than 5 years.
Happy Investing & Stay healthy physically and emotionally.