How to learn from investment decisions gone wrong in the past
Posted by: Uma Shashikant on Aug 06, 2018, 06.30 AM IST
By Uma Shashikant
We truly wish for a life without regrets. But we all have our share of decisions we made that we aren’t exactly proud of. We feel sad about that job offer we did not accept; we repent the unbridled spending in the early earning years; we suffer a sense of anxiety at not having saved enough; we seethe in rage thinking about the loan we guaranteed and ended up paying. Such emotions of loss, sorrow and anxiety are not healthy. But what can we do about the mistakes of the past?
First, make peace and be a little kind to yourself. These decisions are in the past and it is only now, when you have new information from the present, that you are able to view them again to be overcome by regret. If you had known better, you may not have made that decision. You can beat yourself about the inability to walk back and make the correction, but there is no undoing what happened in the past. You have to move on, and forgive yourself.
Second, evaluate what you did for the lessons it holds. You bought that IPO and it is now 95% down in price; you upgraded your car and the EMI is killing you; you bought that Ulip thinking that it is a five year product and now you are staring at a low return; your retirement funds are tied in an annuity that is not earning enough. Each one of these decisions has a kernel of teaching that waits to be excavated, so you can avoid making the same mistake again. Look for the lesson.
Third, take responsibility. Your friend told you that the IPO was a winner; your spouse wanted a new car; your insurance agent was unscrupulous; and your employers did not educate you about the annuity. You can feel good shifting the blame, but you wrote the cheque in all cases. If you had decided otherwise, none of the above would have been able to stop you. Own up to the decision; that is the first step to finding a way out of regret.
Fourth, identify the weakness. You were influenced to make a decision because of an inherent weakness. Identify what that was and see if you can correct it. You did not know enough about stocks to choose correctly; you can learn it. You did not have a conversation about the car; you can work on communicating better with your spouse. You trusted the insurance agent’s words; you can arm yourself better for the next interaction. You did not read the brochures; you can seek help to understand your control.
Fifth, ensure you are equipped to not repeat the mistake. After the bad IPO experience, do not switch to the television or online forum for tips on what to buy. Modify your large asset buying decisions so that you and your spouse take the time to discuss how it would affect your lives. Make sure you have understood all options for tax saving, and begin your investments at the start of the year, rather than the end when you are more vulnerable to mistakes. Find out how you can invest the rest of your retirement benefits at a better rate of return, and learn the basics. Make sure you have made the most of the wrong decision by learning from it.
Sixth, look for the real underlying problem. Are you too eager to make a quick buck? Is there an underlying need to win a chance gain without much effort? Are you not earning enough? Are you unable to postpone the need for instant gratification? Do you and your spouse come under peer pressure to live it up? Are you spending too much and scrambling to save at tax saving time of the year? Are you too risk averse to make any decision that may put your capital at risk? Do you worry that you have not saved enough? There is an underlying cause that might have significantly contributed to the decision you made. Identify and address it.
Seventh, speak about it and take help. You may be holding a share that has lost most of its value and your sense of regret does not let you make the decision to sell it. Speak to a knowledgeable friend, colleague or adviser. You may think it would be better if the EMI burden was lower. Speak to your banker and ask around if the loan can be renegotiated. You want to know if the Ulip should be continued or stopped, and what value you would get. Speak to your agent, or another adviser, or seek help from those who know. You may want to know how to redeploy your funds, and whether the annuity can be discontinued. Speak up and know your options and costs. Try to resolve rather than allowing the problem to fester.
Eighth, know what you can control and what you cannot. You may not have known how an equity share would perform in the future. Despite your best analyses, the IPO turned out to be disaster due to factors outside your control. You can shut yourself out of all equity investments in the future, singed by the steep loss. Or you could ask how you can still make equity investments while keeping the downside risks lower. You will consider a portfolio; you will do value diversification; and you will like asset allocation. You will find a way to participate, while making sensible decisions about risk.
Ninth, question your ability to take change in your stride. If you are unhappy with the way things have changed since you made the decision, ask yourself how willing and able you are to live through change and unknown situations. Some of us do not have enough wealth to take a steep loss; some of us cannot live with uncertainty; some of us do not have the patience for long term investing; some of us cannot give up the lure of a regular income, however small it is. The terms of modern financial markets are constantly changing, and we may fall short. Recognize your limitations.
Tenth, find a better way to do things. If you were to make the same decision today, how would you do it? What would you do differently? What are the questions you will ask? What information would you seek? Write a journal; and list the lessons. Don’t let a wrong decision go waste.