Risk profiling is an essential exercise that most of us skip before plunging into the markets. I mean, do we ever ask ourselves questions like “What makes me tick?” or “What gives me a kick?” or “When am I licked?” Frankly, no. Hmmm, maybe we do actually ask such questions, but not before receiving a solid pasting in the markets. You know, portfolio down 40%, world swimming before one’s eyes, that’s when such soul-searching questions start to pop up. Can’t they appear before we take the plunge? As in, can’t we sort ourselves out before going into the matrix? People, this is 2010, and the human being is trigger-happy. He or she does not learn without pain.
So, after suffering some real big-time knocks, we start to profile our risk-taking ability. Or we don’t, and take a few more knocks. If not knocked out by then, and still willing to play the game, we stumble upon some holy grail questions. Why is this happening? Why are the markets hammering the daylights out of us? Why are those grinning individuals over there almost always winning? Why are we such losers?
The holy grail answer, friends, is something I found out the hard way. I’m sharing it with you because, generally speaking, my philanthropic levels have overshot a certain critical mass for the day and I’m not able to contain the goodness (kidding :-), actually my trading software has encountered a glitch and while it auto-corrects itself online, I figured that instead of twiddling my thumbs, I could, maybe, write something).
So, where was I? Oh yes, I found out the hard way that unless one recognizes one’s appetite for risk-taking and then fine-tunes one’s investment strategy as per one’s risk profile, one is generally going to lose in the markets. Luckily, I didn’t get fully knocked out before this recognition. And, having survived to experience more market time while implementing above tenet, I can only reiterate that even if it takes you five to seven years to fully recognize your risk taking ability, invest the time and effort. You will not regret it.