Opinion | Ways to free yourself from inner turmoil and attain financial nirvana

Every investor aims to create phenomenal wealth by investing it wisely in the equity market. The challenge faced by most of the investors is that they lack the knowledge and expertise to do so. Investors are often fazed by external factors and internal turmoil arising out of their preconceived notions, thoughts, emotions and fears hindering them from making an informed investment decision.

The behavioural aspect of investing or investor psychology plays a critical role in making the right investment choices. A calm and rational mind plays a significant role in shaping one’s psychology.

Yoga can help harmonize the mind and body. Considering that the principles of yoga have a universal application, they can be applied to achieve the goal of wealth creation. One of the major aspects of yoga is to reduce the causes of suffering (kleshas), in order to have a healthy mind and body. In the context of investor psychology, yoga sutra identifies five causes of kleshas which act as a barrier to optimal investing and having a healthy investment portfolio.

Let us take a deeper look at these panchkleshas to understand how we can free ourselves from it to create a healthy investment portfolio:

The five kleshas are often depicted as a tree. Avidya is the trunk of the tree and the four other kleshas sprout from it as branches.

Avidya or ignorance: The chance of success for an investor who sets out to create wealth without understanding the market and its working are extremely low. There are two kinds of avidya —lack of knowledge and wrong knowledge.

Lack of knowledge on where and how to invest leads to investment based on hearsay. People invest their hard-earned money in stock markets by heeding to tips from relatives, colleagues, and friends and expect it to grow overnight. They fail to do a background check, research, compare performance, check growth potential; seek expertise prior to investing in over-leveraged companies and penny stocks. Secondly, wrong knowledge is where people allocate most or all of their investments in sub-optimal asset classes. As a result, most of these investors fail to achieve significant inflation-adjusted return or real-return.

The solution to avoid avidya is by investing time, effort and money in gaining knowledge about the market and the potential stock investment.

Asmita or ego: It is easy for a person with avidya to confuse mere opinion with fact. It is essential to check whether the information at hand is based on brutally honest facts or merely an ill-founded opinion based on avidya. The deeper the avidya, the stronger is the delusion in self or asmita. “I know it all” klesha typically happens during bull markets when stocks picked by the investor or trader are rewarded by the market with profits. This gives a false sense of superiority and it starts a negative loop of ignoring market signals, facts and trends.

The mantra to negate this bias is to “Stay humble and ask for directions”. Learning is a never-ending process and there is no shame in seeking expert advice backed by reputed institutions to validate your views.

Raga or attachment: Raga often compels people to stay invested in asset classes like gold or real estate due to the emotional attachment. It results in clouding of rational decision-making abilities.

A yogic investor can deal with raga by ensuring that investment is guided by latest data in hand rather than emotional memory or attachment to what seemed as a good investment avenue in the past. Diversifying investments through asset allocation enables one to avoid attachment to particular asset class and increases probability of higher returns by minimizing risks involved with fall of a particular asset class.

Dvesha or aversion: Dvesha is the opposite of raga, which is an aversion towards unpleasant experiences. There are three major reasons for dvesha—hearsay, holding on to losing stocks and trying to time the volatile markets. Hearsay coupled with lack of knowledge makes people stay away from dealing in markets. Hearsay and holding on to losing stock can be minimized by seeking professional expertise. Then there are those investors who have burned their fingers trying to time the market.

Investing in SIPs and buying on dips are two effective ways of beating volatility and avoiding unpleasant scenarios.

Abhinivesha or fear of loss: Fear of loss is a major barrier to healthy investing. When fear grips our mind, we can switch our mind to focus on the power of positive thinking.

In equity market, when one develops a fear of loss, one should remember that fundamentally sound stocks prevail in the long run and always bounce back after a sharp fall rewarding the investor handsomely.

The best way to counter this fear is to invest regularly for the long term through systematic investment plan (SIP) and rely on proven rupee cost averaging philosophy. This will help an investor grow their investments in the long run.

It is, therefore, imperative for the yogic investor to overcome these kleshas in order to invest optimally.

Arun Thukral is managing director and chief executive officer, Axis Securities