Experience is the best antidote to fear

Later, I did the same trek using the same route. The exposed section was still scary, but less so. I felt a sense of achievement on completing it

2020 has been a year of extremes for the stock markets. It started out with the markets scaling an all-time high in January 2020 and then falling more than 38 per cent in March 2020 on pandemic fears. It has since risen to new heights: the year ended with the Sensex closing at an all-time high, going well past its January 2020 high. 

While any investment adviser who has been around for a while would have seen large swings, I don’t think we have ever seen such heights, followed by depths, followed by even greater heights within the span of a year.  The pendulum between greed and fear has never swung so far so quickly. 

It has been an object lesson in dealing with these emotions—my own as well as clients’. The defining emotion for the year is fear, especially during March-June, when fear regarding the pandemic’s impact reigned supreme. Fear is easier to conquer when you have had a chance to prepare for it and have a plan for it. We had been preparing our clients for the inevitable ups and downs of the market. Hence, the only things we heard from them during those days was: “How do we invest more now?” In my column dated March 18, 2020, titled “Move from debt to equity but gradually”, I had advocated weekly SIPs in equity. That has worked well (so far). So, the fear of a precipitous fall in the market was handled well primarily due to the preparation done earlier. 

Fear makes us freeze, but prior knowledge can help reduce it considerably. A personal experience taught me this lesson well. I am an avid trekker. On one trek in 2004, I had accompanied my cousin for a trek to Duke’s Nose in Khandala, well known to Mumbaikars. There are two routes to the top. We chose the difficult one. On it, there is a point where you need to climb up an 8-10 feet exposed cliff face using bare hands. There is a sheer drop on one side, but the cliff has adequate handholds. For an experienced trekker, it is only mildly dangerous. I climbed using those handholds but was terribly scared. After climbing up to the ledge, I was overwhelmed by fear. I told my cousin I would not go further for fear of reaching another such point. 

My cousin urged me to at least follow the path till we reached another such point, but I refused to budge. Fortunately, we had a working mobile and were able to call in people for help. I discovered the rest of the path to the top was simple. My fear of encountering another fearful climb had led to me making a colossal fool of myself. I subsequently did the same trek using the same route. The exposed section was still scary the second time, but this time the fear was milder. The sense of achievement I felt on overcoming my fear made it worthwhile. The lesson was well learnt: Knowledge and experience reduce fear but cannot eliminate it. 

Greed, on the other hand, goads us into action. With the market rising relentlessly, some investors are getting impatient and want to invest large lump sums into equity. So far, we have been able to convince them to stay the course of systematic investment in equity or dynamic asset allocation funds. In the long run, this ‘boring’ strategy is bound to keep them in good shape. 

The famous line from an advertisement, “Darr kay aage jeet hai”—there is victory beyond fear—sums up 2020 for me.

The writer heads Fee Only Investment Advisers LLP, a Sebi-registered investment adviser.