Top investor Kuntal Shah on managing investment emotions

Kuntal Shah, one of the founding partners of SageOne, discusses the importance of managing investment emotions: fear, greed, and cowardice. Shah told Money Control that this triangle of feelings motivate, influence, and control an investment during its ups and downs in the highly volatile sector. Recognizing their presence in our minds and attitude can help us use them to shut down a losing venture, or nudge us to be more courageous in supporting a promising stock.

He gives examples of how fear and hesitation, early in his career, cost him to miss out an opportunity that would have raised the value of a stock he owned from $20 to $25 million. Today, he has learned to mitigate risk by letting the emotional swings of fear and greed guide him. Once the stock goes high, he takes some of them off the table as insurance. Then when they go back down, he uses the monies he saved to invest again.

His desire to teach others as well as make use of his hard-won lessons of life culminated in SageOne. Shah had been offering financial management advice solely to family and friends. He formed the company to do it on a consistent, formal, and professional basis to other people. While the firm’s primary task is portfolio management, Shah himself has gone beyond his first motivations of financial independence; he says that his focus now is on wealth acquisition and wealth compounding.

Self-management and self-improvement

To keep himself in financial shape and his instincts sharp, Shah takes the time to converse with and learn from investment and financial gurus he admires. This esteemed party includes Vallabh Bhanshali of Enam, Manish Chokhani, and Durgesh Shah of Corporate Database.

Valuewalk validates Shah’s advice. Managing investment emotions can be done through constant discipline and improvement. Great investors even leverage emotions properly as valuable “assets” in doing investments.

Shah’s connecting with mentors is a positive part of the process. To succeed in the investment game, you always have to keep on learning, and not necessarily just about stocks, financing, and money. An investor will read and update himself on many important topics, from science, education, geopolitics, to child welfare. Reading news articles every day and finishing the completion of several books in a month is the first step towards self-improvement.

Controlling emotions and not letting them control you will also empower you to look at the big picture for the long term. Typical investors base their investment selection on their liking of the product or service. They also tend to bail out during crises events. A more sober investor, though, will check data, facts, and market research before arriving at any decision. Ted Turner is one example.

Exit strategies are also sound. Sentimentality about certain stocks should never be tolerated. Instead, you must always assume and create a situation that can handle the crisis. To be successful in managing investment emotions, never fall into the emotional trap of the sunk-cost fallacy. If not, you’ll be unable to remove yourself emotionally from the investment. In turn, you might keep on putting money into a losing stock until you learn to do otherwise, or hit rock bottom.