Anyone who has invested their money would surely say they have had good and bad times. Quite often we focus on the things that went wrong and then either stay away or be over cautious while investing in the future. Learning from the positives and negatives and incorporating better practices makes a good investor. Apart from the learning’s, two other factors that every investor can use more of is Luck and Intuition.
Up until late 2008, I had invested all my money in bank fixed deposits. Before this period I had noticed that the markets had moved considerably up and down, but none of this prompted me to enter into equities.
In Dec 2008, I got introduced to a financial broker through my neighbour and I had arranged to meet him. The meeting was about a corporate deposit which was offering a rate of around 11% per annum. The rate was higher than the prevailing bank rates and there were no concerns about the company’s credit history. An additional 0.5% was offered to shareholders and this forced me to buy shares of this company – my first equity investment. With the market recovery in 2009, I noticed that the share prices had gone up and this is when I realised that the shares were procured at the very rock bottom of the 2008 slump. Wow, wasn’t that great market timing? Well, there is no point in taking credit, instead it was just pure luck.
Luck is defined in The Oxford Dictionary as “Success or failure apparently brought by chance rather than through one’s own actions”. The keyword in the definition is chance. Another example in my case was to get a job in my home town. I had an offer letter from a reputed firm outside of my home town, as a fresh graduate I had to go for it. Right at the Nth minute I got a call regarding a job offer at my hometown with the same salary (read as ‘more savings’), which I gladly accepted.
In order for luck to present itself I believe one needs to play their part, here in the first example, I had decided to invest, in the second I had to perform well in the interview. Leaving everything to luck would be foolish and a waste of time.
Intuition is slightly tricky to quote by example, The Oxford Dictionary defines Intuition as “The ability to understand something instinctively, without the need for conscious reasoning”. I don’t agree that intuition needs to be instinctive, instead it can be a slow back and forth process.
It’s usually our subconscious knowledge of something or even the lack of it that is communicated through intuition. If leveraged, it can help in decision making in tough circumstances. I had pulled out of a property deal when everything on the outside seemed perfect. It was intuitive and I am glad I listened to my inner self. For intuitive decision making you need to take some time off and declutter the mind.
Intuition improves with knowledge and experience. It’s mostly a feel good factor within us or an internal Risk -O- Meter that can be used as a guide. Knowledge in the subject matter is essential, may be it helps build the data points within us for better decision making. As an example, the accuracy of my intuitions are fairly high with matters relating to personal life, its more to do with experiences rather than anything else. Similarly in the case of financial products it would be best to learn something about the fundamentals rather than a blind investment.
Over time I have developed the below mentioned method with regards to financial matters
- I learn as much possible about the product, read the pros and cons, read user experiences and reviews, also read the fine print.
- Never take instinctive decisions, rather relax wait it out. The dotted line can wait a while for the signature.
- Dig deep within, you will surely get an answer.
- Go in and test the waters with your feet first i.e. small steps.
- Back test and verify the accuracy, refine it using common sense.
- Ride my luck and book profits or at least rebalance to feel comfortable.
No one can survive without luck. You can always improve your intuitive skills and surely learn a lot more. Leverage the power of Luck, Intuition and Knowledge to make better investments.