You should know your Time Horizon before investment

If you are a keen follower of financial journalism and had been following the media, you must have heard the headlines stating For blogthree days there was ‘profit booking’ in our markets. Today, ‘value buying’ emerged. I love these journos.

Next what the predictions for May 16-17th Sensex 24,000. What to say? Well just one line that market forecasters exists to make the astrologers look good. So Greed is good 😉

Now the worst scenario could be Hung parliament. 3rd Front. Consensus candidate Pranab Mukherjee. OR Ra Ga as PM. Sensex 19k in June 2014 Sensex 13k.

Knowing your time horizon before you make any investment is extremely important. This should allow you to keep market moves in perspective so you can align your risk tolerance with your actual portfolio needs. 

If you’re a day trader you have to get used to the fact that you could be hanging onto to every single tick of the market, no matter how painful. Long-term investors shouldn’t have to do this but it’s nearly impossible for people to remember how far they’ve come with their portfolio.  The most recent gains or losses from a single event or period of time are there only ones we seem to care about.

Remember life’s a journey and all that.

Be careful staking yourself to any one point of reference when measuring the performance of your portfolio. The daily close, end of the quarter or calendar year are just arbitrary time frames. They don’t really mean anything. Focusing exclusively on these end points is an easy way to allow anchoring and framing to affect your future decisions.

There will always be a level in the market that makes you feel great (or terrible) because you didn’t buy or sell at that exact price.  Avoid this hindsight-biased line of thinking at all costs.  It will do you no good to play the ‘what if?’ game over and over again in your head.

Performance measurement and benchmarking are important to make sure you aren’t getting ripped off by an overpriced advisor, a serially underperforming fund or bad choices on your own part.  But an understanding of where your portfolio sits in comparison to your goals should be the ultimate measuring stick.


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