21 lessons learned in 2021

The year 2021 was full of ‘newness’ for me. I changed roles after nearly a decade and a half. By luck, or by design, I had begun changing how I invest just a few months before the pandemic hit us last year. With a generous dose of recency bias, I see that the events of 2021, or in fact, the last 20 months, have taught me more lessons than any previous period did.

Investing is not rocket science. As ace investor Rakesh Jhunjhunwala said this year – Funda ka ho gaya mental”. Markets tend to surprise all of us.

Fact is- Investing cannot really be made easy, but it can be made simple.

Here are 21 lessons I learned which I intend to follow, reinforce, and imbibe. They may not be original but is anything truly that?

1. Entertainment and adrenaline are the enemies of wealth creation. Too much excitement and a mountain of ideas usually produce subpar returns.
2. Most active investors and analysts are forecasters. Some forecast prices, some economic variables and others earnings. Listen to all of them, but don’t believe any of them blindly. Believe in consistency.
3. Financial and investor education is more often just marketing disguised as support. You would be better off ignoring most of it.
4. It’s very tough to see across the mountain peak until you reach the summit. When you track markets actively, it’s not easy to argue against proven narratives and hard numbers. But most obvious trends seldom make much money.
5. Bull markets are a fertile ground to overestimate our investing skills. That is one of the chief reasons why investors don’t survive corrections, let alone bear markets.
6. Most investors (including many finance professionals) don’t know whether they are even beating the market. Very few, if at all, even know their own performance track record. Knowing is enlightening.
7. The reward for just trying to not get beaten by a simple broad-market index can be much higher than trying to beat any benchmark. Most investors can meet their goals by just matching the market.
8. It’s a great feeling to know that you are ready to invest if markets crash. Chances are, you won’t be ready.
9. What seems like stupid and plain-vanilla predefined investing habits, like the SIP or STP, are way more powerful to help achieve goals than being the most accurate about trends.
10. The market doesn’t reward your accuracy to pick tops and bottoms. It rewards your ability to stay invested through the thick and thin of long-term trends. Diversification across assets acts as a pool ring.
11. Bear markets aren’t fun. However ready you may feel you are, it will still be very painful. Falling portfolio values tend to scare more than the excitement of rising notional wealth. Create reinforcements that will allow you to remain disciplined.
12. The worst start to an investing career is in a bull market. If you aren’t learning the right lessons of discipline and soberness at the time, it would be the beginning of the end. Don’t mistake great early returns for great investing acumen.
13. The chief architect of portfolio destruction is leverage. Financial news and entertainment pull us towards more action. Small rewards cause us to overestimate our abilities. Leverage then acts as a weapon of wealth destruction. Most of us should avoid it at all costs.
14. Investors who pay humongous costs by active trading through losses, commissions and taxes often complain about the meagre costs of index investing! A passive investor has better chances of beating the market than most active ones.
15. The trend of anonymous investing wisdom is a trend. It appears in all cycles through various mediums. There is no need for 24X7 education or awareness.
16. Don't chase returns and reputation; focus on the intent and content. Being invested in and aligned with what you understand can create better outcomes.
17. The volatility of returns is a bigger differentiator than the past or future returns on investment. A less volatile investment offers more conducive conditions for you to stay the course when the going gets tough.
18. We usually panic late. If you must, panic early or don’t. It is an art to know how to panic- all of us have to learn it. Prepare a contingency plan of action, not the intent. That too when you are calm and probably are enjoying a good time.
19. Outsource dealing with your problems, shortcomings, or lack of understanding. Investing is a skill-based activity and not many can know all about it. Seek help.
20. The most expensive advice is often free. Just that costs are back-ended and they flood in later.
21. The market humbles everyone. If it hasn’t yet, it will humble you eventually. Start and stay humble.