Warren Buffet, the most successful investor, says “Don’t put
all your eggs in one basket” and I think it is true not just for financial
investment but for emotional investment as well. Everyone has an emotional
investment portfolio to be managed. Here stocks are people (relatives and
friends); investment goes in terms of sentiments, feelings and attachment; the
positive returns can be realized as support and happiness whereas negative
returns come as sadness even as a sense of void in life because of that stock;
and bankruptcy is a state of depression.
If one invests only
in a single stock then risk is very high, it affects the investor for each up
and down movement (positive and negative returns) exorbitantly. But if an investor
has a diversified portfolio i.e. investments in other stocks also then this
risk can be reduced. The negative returns by a stock can be reduced by another
stock in the portfolio with positive returns. If you get highly exposed to one
stock then it has all the capacities to drive you bankrupt.
I would translate
this for those who hate finance and have, already, started feeling like tearing their
hair out. If we get attached to only few people in our life then there are more
chances that their absence would get intolerable or we would get hurt badly because
of them. But if we have more people around us then there are less chances that
all of them would hurt all at once or go away at once. We can share our
feelings with other people close to us and reduce the intensity of negativity with the help of their support.
On extreme case if a person is dependent on only one person then problem gets
acute.
So it is better we diversify our portfolio of people with
whom we get attached and reduce the risk of getting negative returns as sadness
P.S: 1) We have, alike
financial investors, short term, medium term and long term investors here too.
2) Post was written with a perspective of diversifying friends portfolio and not boyfriend/girlfriend portfolio :P
2) Post was written with a perspective of diversifying friends portfolio and not boyfriend/girlfriend portfolio :P
I've never been able to achieve this diversification, but a model can help people like me :P
ReplyDeleteVery nice and innovative idea to relate finance and emotions.
ReplyDeleteMy opinion about the same is a bit different. In case of relatives especially we have no choice of investment; it's been already done for us, we only have option to continue or get out from the market. As a rational individual investor we can try diversified portfolio for friends and sometimes may realize that most of our choices tend to have downwards movement, then we usually try and become an industry specialist or particular stock expert and try to follow only that particular stock or industry which we feel has maximum potential to move upwards. Where we believe that in short run it may give negative returns but over the period it has potential to give positive returns at much higher rate of return than market. In P.S. (1) you have mentioned what I am trying to say, some investors like Buffett look for long term investment and go for only selected stocks which have potential not caring for short run profits/losses whereas some are Day Traders; only for a day or two they will be there. so then it depends on the morals, values and beliefs as well; Extending investment theory we can say it has Behavioral Finance and Learning Curve aspect too.
Really very nice idea put-forth in precise manner. I feel you should write more frequently. :)
Short term loss is not realized loss, one knows that the fundamentals of the company are strong. And I personally believe in long term investment rather than depending on market sentiments.
DeleteRelatives are employee stock options (ESOPs) one just gets it and they remain with us to support us till the time we are in the company. We just realize their importance when our rest of the portfolio is taking a toll. Then there can be some ESOPs of subsidiary companies, valuation of these stocks is difficult because of unfamiliar management but they affect the stocks of our parent company. So keeping ESOPs is a good decision and if one feels its value is going down then one can suggest the higher management accordingly and support one's own ESOPs.
ReplyDeleteI'm thinking to write more on the theme, lets see how we get time with our current schedule :P
Beautiful message being conveyed with a dash of humour by including finance! Kudos!
ReplyDeleteThanks Shibani :)
DeleteThough I don't belong to the finance community but helplessly involved in emotional investment. This well written concise blog not only flashes lime light over the ironic twists in relationship but also put forward measures to seek happiness being emotionally committed to our near and dear ones. Thanks for such brilliant thoughts. Keep writing!
ReplyDeleteThank you bhaiya :)
DeleteNice one Preets, but there should be a cap on diversification. A concentrated mutual fund beats the market more than usual ;)
ReplyDeleteThis was written keeping in perspective of depending too much on one person. I agree that there would be cap on diversification. Otherwise it won't be an investment with almost nothing at stake because there would be no attachment to stocks(people).
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