As an investor, when you are investing your hard earned money in growth assets like equity and real estate, you are definitely expecting inflation beating returns.
But the important point to remember is that there are two important factors which is going to affect the return (either positive or negative) you are expecting.
1. MARKET: This is not in your control.
2. MINDSET: This is totally in your control.
1. MARKET: There are many variables impacting the market which are inflation, interest rate, crude oil, political factors, events happening in other countries etc. As an investor, the way market behaves is absolutely not in your control because market gets impacted by so many factors mentioned above.
2. MINDSET: “Mindset” is a way of looking at a particular thing depending on your past conditioning and experiences. You could fall under either of the 4 categories of mindsets mentioned below:
A. FIXED MINDSET: Under this mindset you do not deviate from your thinking.
For Example: You have been doing SIP from last 7 to 8 years and have been getting good returns. But once you tried to put some money as a lumpsum in which either you got negative returns or the return which you actually got was lesser than SIP returns. So this made you to believe that lumpsum never gives good returns and thus this becomes your fixed mindset.
Even if there is a steep fall in the stock market and presents you a good investment opportunity then also your fixed mindset will not allow you to put lumpsum.
B. COLLECTIVE MINDSET: Under this mindset, you do not use your mind rather you get influenced by the decision of other people even though it might be illogical.
Our collective mindset is getting shaped by print media (newspapers, magazines), electronic media (TV) and social media (facebook, what’s app) etc.
The legendary investor Mr. Warren buffet has given a simple and sensible way of making money that is “Be greedy when others are fearful and be fearful when others are greedy”. But because of collective mindset, we tend to do what others are also doing.
For Example: During market crash of 2008, most of the people were fearful. So if someone would have implemented the teaching of Mr. Warren Buffet, that was actually the time to become greedy and invest more. But because of collective mindset, most of us became fearful because others were also fearful and we did not invest in that crash and thus could not participate in the really that followed later on.
C. DEFENSIVE MINDSET: This is one of the worst mindset to be in. Under this mindset “Return of capital” is more important than “return on capital”. Under this mindset, you play safe.
For Example: If you had lost money in 1992, 1999 and 2008 market crash, then this mindset did not allow you to invest further in stock market. Post making the losses what you actually did was you invested in bank fixed deposits.
D. PRODUCTIVE and GROWTH MINDSET: Under this mindset:
1. You are always looking for money making opportunities.
2. You learn from your previous mistake and you do not repeat those mistakes again and again.
3. You give more importance to “learning” rather than your “experience”.
4. You are willing to invest time so that you can thoroughly study about growth assets and take a calculative risk.
5. You are willing to risk yourself into unchartered territory. For Example: You might be an expert real estate investor and might be knowing nothing about stock market. But you never say that stock market is not your’s cup of tea rather you start educating yourself about stock market and are willing to take risk.
If your mindset is “Productive and growth oriented” then its well and good. But if it’s not then its high time to change it. Because unknowingly, unintentionally, unpurposefully your mindset is not only affecting your area of investment but it’s also affecting all other areas of your life as well.
Someone has rightly said that:
Your MINDSET becomes your THOGUHTS.
Your THOUGHTS becomes your ACTION.
Your ACTION becomes your HABITS.
Your HABIT determines your DESTINY.