Investing is a battle with the self

?Similar to a pilot learning to fly and accumulating flight hours to become skilled, an investor must understand the art of investing and gain experience in order to succeed. Most important in this process is self-awareness.

What are your investment expectations, and how much risk are you willing to tolerate? Everyone hopes for the highest profit, but experienced individuals set more realistic expectations than those who have only experienced upward market trends. The truth is that "high returns come with high risks." Therefore, it's better to focus on the level of risk you can endure. Can you tolerate a 30%, 50% decline in assets? Your tolerance will determine the type of investment assets you choose—speculative stocks, less cyclical industries, bonds, or deposits.

Humans often discover their limits through real-life experiences. When the market peaks, naturally we would feel optimism, positivity, love for investing, and confidence, as most decisions result in profits. Theoretical issues like high valuations become obscure. However, when the market heads towards the bottom, our feelings turn to negativity, discouragement, regret, fear, and insecurity. These emotions become real if the invested amount is a significant portion of our total assets. In this extreme emotional state, when our limit is reached, we're at our weakest and likely to make the worst decisions, decisions we'd never make in normal circumstances. This is the best time to recognize your actual risk tolerance.

If we can learn from these experiences, that's the best outcome. We often blame external factors like the market, regulatory agencies, corporate leadership, etc., rarely admitting our mistakes, and hindering our learning. The market is entirely independent of our expectations, desires, or prayers. Subsequent events will unfold with a similar motif, and we need to remember our lessons.

Can you control the market? No. Prolonged events like the Russia-Ukraine war, Covid-19, arrests in major domestic corporations, etc., significantly affect the market, and only a small portion of investors can anticipate or predict them. Focus on what you can control—yourself.

Investing is a battle with oneself, not with others or the market. Understanding and accepting oneself is the first and most crucial step in gaining control. Observing yourself at the heights of your limits, and you will understand that extreme excitement and extreme fear are two extremes of the emotional pendulum, corresponding to the market's peak and bottom. So then, to make the most reasonable decisions you must find your personal balance and achieve the most stable and rational mental state. For instance, someone investing only in fixed-interest products or deposits might seem irrational to those seeking high returns and willing to tolerate high risks. Still, it's a very logical decision for someone with low risk tolerance. Their decision brings them peace of mind because they understand their risk tolerance only goes so far.

What about you?