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Everyone wants to win but very few
understand that you can win a game by limiting your losses.
You can make a great career, travel
around the world, and follow all your passions if any accident doesn’t put
brakes in your path or your health doesn’t fail you. To ensure good health and
long life, we are advised to be disciplined, eat healthily, exercise, and not
be reckless.
The same is applicable to
investments. However, here many of us end up being reckless in order to make
quick money.
The problem is most of us want to
double or triple our money in a matter of a few months. Even if you make 100%
returns in one year and 50% loss another year, you are back to square one. If
you make 50% returns in one year and 50% loss another year, you have lost 25%
of your portfolio value in two years. Instead, focusing on consistent returns
of 15% over a 5-year period will double your investment.
Investment is not a sprint but a
marathon. If you play it like a sprint, you are most certainly going to flip.
When investing, think about
consistency. For consistency, a risk management framework needs to be in place.
In a sharp market decline, if your portfolio is falling lesser, you can take
advantage of lower prices and when the market recovers you end up making much
better returns than the market by taking a lesser degree of risk. If you are
able to manage risk well, market-beating high returns follow in a consistent
manner.
There are good & bad times to
get aggressive in investments. The key is to be able to identify when to get
aggressive. Unfortunately, most people get aggressive & conservative at the
wrong time.
That’s why creating a risk
management framework that can guide your actions during different market cycles
can produce tremendous results for you. At least, it has done for us & our
clients at Truemind Capital. We have always prioritized risk over returns and
that has helped us generate higher returns compared to the benchmark.
Know your risk appetite and know the risk in your investments before investing. If you can do this exercise well, you will outperform the market by taking lesser risk and lower volatility in your investment portfolio.
As Charlie Munger says, “Avoiding stupidity is easier than seeking brilliance”
Truemind Capital is a SEBI Registered Investment Management & Personal Finance Advisory platform. You can write to us at connect@truemindcapital.com or call us at 9999505324.
