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A Must Do List For Investors

Monday, July 17, 2017
By Amar Pandit

Amar Pandit

The equity markets are at all-time high, uncertainties about the impact of GST & Geopolitical events are looming over the markets. Gold & real estate haven’t fully recovered from the effects of demonetization, while the RBI is firm on its stance to keep the interest rates unchanged, the debt fund honeymoon from the last 2 years is unlikely to continue. Amongst all this confusion, an investor might be wary to invest further.

To give you an insight on how an investor should behave during times like these, we would like to share with you something known as an Ulyssesan Contract: a decision made in the present to bind oneself to a course of action in the future.

Ulysses, a Greek king, was on his journey home after the Trojan wars. The journey took his ship’s crew close to the Sirenusian islands, famous for being home to the Sirens, whose songs were so irresistibly seductive that seamen felt impelled to fling themselves into the waters, in an attempt to reach the Sirens. No seaman had ever survived, so no living human knew the nature of the Sirens’ songs.

Ulysses wanted to be the first human to hear the songs, and survive. He instructed his crew to fill their ears with beeswax to block out the sound. Then he asked them to tie him to the mast and to ignore his pleas to be released, should he do so. The plan worked. The crew could not hear the song. Ulysses heard the Sirens’ songs but the crewmen ignored his entreaties to be untied. When they were out of earshot, he gave a pre-arranged signal to take out the ear plugs and release him. The plan worked perfectly!

Ulysses had committed himself to a rational course of action at a neutral time, that is before he could hear the Sirens’ songs, and ensured that he stuck with his decision. A BIG LEARNING here for us!

The Ulysses Strategy in-Action and Three Step Action:
Every investor has a lesson to learn from this mythological story. Ulysses made a pact with himself and his crew to conquer the known limitation of the human mind- temptation. Similarly, in Financial Planning, the trusted advisor (the crew with beeswax) should help the client (Ulysses) to not let his emotions get the better of him and engage him to stay committed to a rational investment strategy irrespective of the noise/movements in the market (that may otherwise trigger irrational responses of the intuitive mind).

1.    The investor must understand that investment decisions tend to be impulsive sometimes.
2.    Both the advisor and the investor should agree upon what action should be taken when the market conditions are rough.
3.    Investor should then draw up a plan with his or her financial advisor and stay committed to the same.

To conclude and summarize, below are the check points that investors must keep in mind while investing in 2017….

  • For the greatest chance of success, have a plan in mind for regular investing and be patient even in difficult markets.
  • Invest in line with your financial goals and risk appetite, rather than market conditions. 
  • Don’t be alarmed by the stream of daily news, tracking the market’s ups and downs. Short-term fluctuations can make anyone confused and uncomfortable.
  • Maintain a balance between your debt and equity investments. Investing in a well-diversified portfolio can also reduce the effect of volatility over time.
  • Keep investing through SIPs. You know continuing them regardless of market conditions is the best. In uncertain markets, regular investing is a good strategy for managing market risk.
  • Be reasonable with your returns expectations and stay invested, do not jump from one investment to another.

Take up this challenge. Go ahead. Draw a Ulysses Contract to yourself and try to stick to it the next time the markets are irrational. We are sure that having taken this step will help you to pre-commit to rational action before the weather (markets) gets rough.

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