What makes a great investor?

Great investors are made in volatile markets.

Nifty is down ~7% from peak while Small Cap Index and Mid Cap Index have fared worse and are down a lot more. More than the market action, the doomsayers are out in full force on media. The recent events – rating downgrades, Rupee fall, credit markets volatility etc – have spooked the markets. Imaginations are out in full force on the worst that can happen.

Everyone has a plan till they get punched in the face

– Mike Tyson

What to do now?

First, don’t do anything in a rush. Don’t second guess your investment plan. Don’t do something just to seem more action-oriented. If you are itching badly to do something, buy Rs 100 of IDFC Nifty fund and call it a day. As in life, so in investing – make decisions in a calm state of mind.

Never cut a tree down in the wintertime.

Never make a negative decision in the low time.
Never make your most important decisions when you are in your worst moods.
Be patient.
The storm will pass.
The spring will come.

-Robert H. Schuller

Second, realize that such corrections happen in the market quite often. Anyone who has lived through the tech bust of 2001 or the global financial crisis of 2008 will tell you such corrections are quite common. Just to make the point, below is the drawdown chart for NIFTY since 2008. It plots how much below the all-time peak Nifty was at that time. NIFTY 50 was 7% or more below its all-time peak 58.1% of all trading days since Jan-2008. So, drawdowns are common. Markets don’t go up in a straight line.

Third, media and financial journalists cannot predict future returns. They amplify what is happening – good or bad – and make it newsworthy. Neither can bloggers, research analysts, wealth managers or even fund managers. So don’t get overwhelmed by the noise.

Finally,  stick to your plan. Keep it simple. If your plan was to buy on dips, do that. If it wasn’t, don’t. Don’t buy on dips just because your friends are.

So, what differentiates a great investor from the rest? They stick to the plan even after being punched in the face.

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