Unpredictability (in stock markets and in life)
As we all know, the stock markets are highly unpredictable. This article will try and draw some analogies between my mental model of stock trading and life. There is a saying in the traders’ diary — “Always hope for the best, but prepare for the worst”. What it means is protect your losses as well as your profits (profits in the pocket are actual gains, not the ones on paper), because the markets can turn rogue anytime and you will be caught off-guard. And how do you do it in as per literature. Suppose you bought a stock at 100 and your maximum risk taking capacity is 5%, then you will put a stop loss of 95. If your expectation of return is 10% then book profit of 110. This is a classic expectation setting mechanism. Now, you again buy at 110, and have a stop-loss at 104.5 and a profit book of 121. One can say that the markets can go down from 100 to 92 and then turn back and hit 110, but yes that is beyond your risk appetite. If you are extremely confident of a stock (like I am for some), you would again enter at 95 with a stop-loss of 91 and a profit booking of 104.5. You would have heard veterans like Warren Buffet tell that you hold a conviction on a stock then hold it till infinity. But he himself made tons of money during 1960 to 1985 when there was a US market bull run. If he started in 1985, he would not be where he is. Not discrediting the intellectual of Buffett, but his gains are a function of the market cycle when he invested and his stock picking, both contributing equally. And he too, exits firms where there are losses beyond his appetite (like airlines stocks) and enters into new companies.
Now let us enter into life. We never know what would happen at any point of time and are just pawns in a big game. Now, how do we handle uncertainties in your life. Top of the mind, I can characterize life’s decisions into 3 buckets — lifestyle, relationships and career. Now, lifestyle is more of a trade-off and is not a life-disruptor (at-least for me). So I will take the privilege of excluding it from this write-up. Lets take relationships and career. We enter both to get happiness, self-growth (may be a bi-product) and money for sustenance(from jobs). Your happiness increases when relationships are healthy and you are growing or satisfied or both (some people are just happy with where they are with no intention of growing !!!) with your career. What if they are not… As humans, we can be either strongly committed to a job or a person (since it is always a conscious choice) OR we just keep hopping on to other seemingly greener pastures (new relationships or new jobs). How this mental model works. For people committed, they would put all that they have got if they are not getting the desired happiness from a relationship/job. Now, there can be two outcomes — (1) the things keep getting worse and we keep putting in efforts (waiting for a turn-around). The worse maybe due to external factors or due to one party too reluctant to make both ends meet in ever changing circumstances or both parties stubborn on their expectations.(2) things change once efforts are put in by both, expectations are clear from both ends and both parties strive to make it work. Points (1) and (2) are major extreme outcomes, the underlying efforts and that phase is the hard part. The question is — Even with all your efforts put in to get a relationship/job back on track (delivering happiness), is there a stop-loss..??
For me, it is a YES. Though the risk appetite here is not 90 (for a buying price of 100) but maybe 50. And, you will always know (if you are somewhat self-aware) that your internal support levels are breaking slowly as time passes. The way to go about this may differ from person to person but whenever each support level breaks, make sure that you always do something about it (be it adjusting, discussing, counseling etc.). In the end, it is your efforts that may or may not bear fruits and you should be ALL-IN before you reach 50. And, if still you see the downtrend continuing, QUIT. There is nothing worth taking that much pain. People might say that in the long run it is for a stable happiness, but they also know the right word here is COMPROMISE.
Is there a profit booking in life — for me, NEVER. If your job and/or your relationship is healthy, it will serve you as food, keep you and your mental stability in excellent state.
For people, who keep hopping on, All the Best, because I always hope for a life where my things sustain for long.
“The only 2 difference between stock market unpredictability and life’s unpredictability is — (a) that you have some control to turn-around a situation in Life (even though it is less) and in stock market this control is ZERO and (b) there is no profit booking in Life”
