The Toll You Pay

Investing into equities is an emotional roller-coaster for investors.

Adam Smith (pseudonym) in his book “Money Game” write (italics mine):

The game of professional investment is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll.

This toll is volatility.

In the last 20 years Nifty 50 has delivered 12.3% CAGR (without considering dividends).

However, this table tells you a slightly different story:

  • Four times in last 20 years, the market fallen over 35%.
  • Twice it has fallen over 20%.
  • And of course, there have been multiple 10% plus falls.
  • These 35%; 20% drawdowns are not the only tolls that you pay.
  • There are multiple times, you will experience periods of flat to negative returns.

The gumption to go through these rollercoasters and to say ”Pay these tolls” will then reward you with the 12.3% CAGR returns.

Bitcoin fell over 50% in a matter of days. Yesterday it fell 30% in a day and then recovered 35%.

This is par for course for financial investing.

However, as Adam Smith writes in his book- “80% investors are not into stocks to make money”.

The gamification of investing involves emotions, thrills, chills and tears which makes it an irrational exercise.

This also is “Par for course” for investor behavior.

As an investor (while there is no taking away the emotions out of the equation).

The way you can think about this is to answer the basics:

  1. Are you investing to a plan?
  2. Why are you investing?
  3. How much risk can you take?
  4. What are you investing in?
  5. What is your investment tenure?
  6. What is your expected return?
  7. How much will you allocate to various assets?

And then if you really want to play the game:

“Have a small “Fun Money” allocation with which you can play the game and you might not mind losing”

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s