What's in your hand and what isn't

If the budget didn't get you, then the elections will. Or maybe it'll be the shenanigans of promoters who have pledged all their stake in companies. Or the RBI will do something unpleasant to interest rates. Or, it'll be credit rating agencies, which seem to discover bad news about their rated companies when it's already out in newspapers. Or, looking around the world, it could be oil prices. Or Donald Trump. Or something, anything. It's a wonder that investors can bring themselves to put even a paisa on anything at all. I mean, at any moment, anything at all could be happen to your investments, for good or for bad. How many diverse factors can an investor consider while making investments?

The last few months have been particularly hard on investors in terms of the events and trends that had to be kept an eye on, or rather, which give an appearance that they should have been kept an eye upon. Businesses that appeared to be sound have turned out to be bankrupt. Those that were known to be bankrupt have finally had to admit that to the world, and more challengingly, to themselves.

Most confounding have been businesses that are perfectly sound by themselves have given their shareholders (reverse) sticker shock because the promoters have some other sideshow going on, with the latest example being those of the Essel/Zee group. How are investors to handle something like this? The obvious conclusion would appear to be that one should keep oneself well-informed and judge which companies could be prone to something like this.

However, that's actually not a solution to the problem at all. You can convince yourself that had you paid enough attention to the promoters' stake-related issues for the Essel/Zee group, you could have made the correct judgement call about it, even though it's still hard to see what that could be. Even if that were the case, what would you do about the laundry list above? How many things will you guard against? And most importantly, for how many of these will your guesses be correct?

I say guesses because none of this is under your control. What the RBI does to interest rates or what calamity befalls the previously secure promoter of a business group is not under your control. Perhaps, then, it may be better for investors to focus more on what they can control. You have control over when you invest, what you invest in, what price you invest at. You can control whether you invest it in a great excitement in some bubble, or whether you invest systematically and gradually. You also have complete control over the money you are going to invest in. How important is that amount money in the general scheme of your finances? How long can you invest it for? Will you need it suddenly, or is it for a planned expenditure. How stable are the rest of your finances?

That's the stuff about which you are in control, or you have real information. The veracity of the information and understanding you have over your own finances is (or should be) of a very high quality, a whole lot higher than that of your information about the course that Donald Trump's trade war with China will take.

This is a form of 'control bias', which I've written elsewhere about. People worry too much about what they don't have control over, but not enough about what they do have control over. The classic example is that of the fear of flying vis-a-vis the overconfidence of driving. Because we don't know what's going on in the flight deck, we worry too much. However, when we drive ourselves, we don't worry enough. We don't bother to drive carefully, and take needless risks. At the end of the day, the outcome is far more dependent on what we can control rather than what we cannot, and that's what we need to focus on.