Investing Realities: Focus on these 4 factors instead of just returns

economictimes.indiatimes.com:

This echoes a sentiment familiar to investors in the stock market. Investors often fixate on the end result i.e. returns while neglecting the critical factors that are within their control namely risk, cost, time, and emotion.

In both cricket and investing, the tricky part is feeling like you're in charge when, in reality, some things are beyond your control. Cricket teams make plans, but things like weather and how well the opponent plays can change everything. Similarly, investors can study stocks, but the ups and downs of the market, global events, and economic changes are not something they can control. Now, let's take a closer look at the usually overlooked factors of risk, cost, time, and emotion, and see how they can affect the results of your investments.

Finding the Right Balance between Risks and Returns: Investing in the stock market is like walking a tightrope; you need to balance making money with being careful not to lose it all. Central to this balancing act is the concept of position sizing, which involves determining the appropriate number of shares or the amount of investment in a specific security. With a motive to earn higher returns, investors frequently overlook diversification and position sizing. For example, an investor has Rs. 1,00,000 and focuses on an investment that is expected to generate 20% returns within a month. By focusing on returns, he will tend to invest the majority of his funds in that scrip thereby increasing his risk appetite. In essence, the wisdom lies not only in seeking gains but in creating a defensive playbook against market volatility.

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