Sunday, November 25, 2018

JOURNEY FROM GREED...TO STRESSED INVESTMENT


Do Greed and asset allocation have any relationship?  Do your investments make you feel stressed? Spending sleepless nights and looking often towards price is nothing but stressed investments decisions taken based on greed.  How does investment turn out to be stressed investments might appear to be strange but it happens due to greed which drives us to take the decision away from our own objective of investments and strategy mapped according to our various factors? 

Stressed investments are nothing new but we have never thought about the same. Either it was hidden under the glorified carpet of success or eloped under the mounting losses. Stressed investments damage might be beyond numbers and asset allocation. It can damage human life too.

Greed takes control of asset allocation and takes the final shape into stressed investments. Greed threatens and amplifies the risk of asset allocation. Well according to behavioral science greed may rule over asset allocation. Greed takes control of the principles of investing when the market scales new highs. This is one of the most common things we witness when people trend to buy at high levels and stay away when then the market fall.

 Greed also compels investor not to rebalance the portfolio despite warnings from a particular asset class.  Greed compels an investor to create a different mindset for them where the world only looks rosy. This rosy world has a calculative mindset and everything is based on greed driven expectation and calculation of investing or not taking the call of rebalancing.

Investor often follows the herd mindset while doing investing. They always ask their neighbors, friends to get an idea about where and when to invest. Individual risk and financial goals are often forgotten since the other person is making a quick short-term return in the market. Greed-based investments often take one investor into a stressed position. This stressed position can also be termed as stressed investments.

Asset allocation principles depend upon the risk analysis of an individual which varies from one person to another. Further, every individual has different financial goals and has different time frames of achieving the financial goals.  The birth of greed comes when one trend to achieve the financial goal by leveraging the asset allocation road map. This is the place where greed takes control of one’s decision and hence financial planning gets into danger.

Financial planning is a strategy based game where patience and control of greed is one of the most important tools. For example, getting on the nerves of greed, one takes an investment decision beyond his asset allocation map, following the herd. Now when the market goes for a swing since the existing asset allocation has swelled in one asset class he takes more leverage to make more money out of the same overvalued asset class. This leverage is nothing but greed. Similarly when the market falls often this greed compels investor not to sell and stay with his portfolio despite losses mounting over the portfolio. The greed which takes control over here is that the markets will turn around and hence my profit will be back.    The greed factor did not allow selling. In both, the scenario the investment turned into stressed investments. Stressed investments damage might be beyond numbers and asset allocation. It can damage human life too.

In my own real life, I have seen that many investors are under so strongly influenced by greed that they don’t rebalance their portfolio despite the markets alarm of rebalancing. They have a strange perception that investments will grow again from the low levels and on an immediate basis.  The debate of time correction and price correction comes into play and hence greed starts making new calculations of returns which have no signs of reality.

Stressed investments destroy families and even in many cases, it spills over to the next generation where the greed-based losses are being borne. A legacy of losses are high which becomes a nightmare for the family. Greed kills and destroys families when investments are not taken into with proper control.

Asset allocation is completely wiped out in both the scenario. Now the most immediate question will be what should be the strategy for these types of situations. Well, greed will try to control the mind. The only way to avoid it is sticking with the objective of investments and the road map as decided upon on the investment charter.

Yes, the value of the investment charter is immense and one of the most important values is that it acts a mind protector. Reviewing the investment charter is not greed. It’s an important step in financial planning. Greed opportunities may lead to short-term gains but the probability is that in most cases it erodes the value of an investment and finally the financial planning take set back.


Well, how many of you have fallen under the prey of Greed? Do your investments are stressed?

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