As we all know, 2022 has been a difficult year for investors so far. Given the losses and volatility of the past few months, last time we looked at some counsel to inform a healthy mindset towards investing when times get tough.
This month, we take a look at some more:
Don't get too attached if things need to change
It can be tempting to cling to the familiar. However, just as we must sometimes separate from impactful people or places to move forward, sometimes it's the stocks or funds that have played the biggest part in your investment history that must be removed. Just because a particular holding has fondly delivered as part of a portfolio for years does not mean that it's guaranteed to do so in future. Situations, environments and market narratives change over time and there's no sentiment in the markets.
Conversely, it may be psychologically rewarding to cling onto a position deeply in the red in the hope that it will eventually come good – but that may not be the best way to go. As Warren Buffett put it at Berkshire Hathaway’s annual shareholder meeting in 1995, “You don’t have to make it back the way you lost it.”
There are always new opportunities out there
Whether it's missing out on a promotion you thought you were sure to get or – yes – seeing those red figures in your portfolio, loss is hard to handle. It has often been proved over the years that people feel the pain of a loss much more than the pleasure of a gain. Yet, while hurt rarely heals fully, hope that positive outcomes are still possible eventually returns.
Just as consoling friends are wont to say “there are plenty more fish in the sea” – however unhelpful it may seem at the time – there is a whole world of investment opportunities out there to seize. The Investment Association currently logs more than 4,000 open-ended and exchange-traded funds available to UK investors; almost 400 investment trusts are available; and tens of thousands of companies are publicly listed around the globe. If your portfolio is beset by problem holdings, there are plenty more out there to try.
Think: what could you be missing?
In the midst of an emotional storm, it can be all too easy only to see things from your own perspective. That narrow view is what can generate so much upset and anger. So it's always worth trying to understand why other parties involved might feel the way that they do.
Similarly, in investing, where a position is not working out as you expected, it's worth asking: what is the rest of the market seeing that I am not? The answer could prove enlightening – and valuable.
Things don't always turn out the way we expect them to
That doesn't have to be a bad thing.
In the end, it might be a different situation, person or career path than you expected that brings fulfilment. In the same way, it might be a different fund, stock or asset mix that eventually plays its part in bringing you stability and prosperity. Ultimately, it does not really matter how you reach your goals; only that you do.
Well, there we have it. Hopefully these two articles will help you to help investors feel a little more at ease with the emotions that make up a key part of the investment experience.
How to sum it all up, to try and become a better investor over time? It boils down to this: think, reflect, and above all: learn. In the end, that's all anyone can ask of anyone, and indeed of themselves.