Answer these 4 questions to learn how to deal with uncertainty in investments – 05/05/2023 – From Grain to Grain

Without a doubt, it is very important to study the products and application strategies, but the act of investing goes beyond the technical part. Usually, investors forget a fundamental element in investments. If the technique is the building block of your undertaking, the emotional aspect is the cement that sustains so that everything does not fall with a simple wind.

According to Seneca: “If you don’t want a man to back down when the crisis comes, train him before it comes.”

This is the objective, that is, to prepare yourself emotionally to withstand the worst, in case it occurs, or even to avoid the unwanted.

Yes, who has never invested in any risky asset and, after a moment of stress in the market, wondered if they made the proper investment and suffered from anxiety?

It sounds simple, but almost no one prepares for the worst. The best thing to do when faced with any decision involving uncertainty is, before making this decision, to think about the worst.

This approach is not recent and is defined by the Stoics as premeditatio malorumpremeditation of evil.

I will give credit to whoever introduced me to this concept. He was introduced to me in Pedro Sobral’s Tuesday classes. Anyone who likes digital marketing should already attend his classes on Tuesdays at 3 pm on Youtube.

In fact, I already exercised this concept, but in a different way and I didn’t know that it was due to the philosopher Seneca.

My college students will remember what I always said: in investing, the only thing certain is that at some point you’re going to be wrong.

Perhaps someone will argue: to think about it is to be pessimistic. I will digress.

Exercising the use of this philosophy is essential for you to prepare yourself psychologically and even understand if a certain risk exposure is suitable for your profile.

Sobral didactically presented four questions that I adapted to investments and that are useful to guide you. These questions must be asked before making any investment involving uncertainty. So let’s go to them:
1 – What is the worst that could result in your portfolio if you maintain the current exposure for the next 10 years?
2 – What is the worst thing that could happen to your portfolio if you change your position?
3 – What to do to prevent this worst from happening?
4 – If the worst happens, what will you do?

Some may find it difficult to exercise these questions. I’ll give you an example.

Imagine that you only invest in savings or only in fixed income and you are questioning whether you should increase the risk of your portfolio, for example investing in stocks, real estate funds, hedge funds or another risk application. Now go back and answer the questions.

Will your goals be achieved if you remain risk-free? What might happen to your portfolio and your journey to independence if you up the stakes and the worst happens? How can you prevent this worst outcome from occurring? If the worst happens, will you go back to fixed income, or will you keep the position?

Realize that the goal is for you to reflect and thus avoid frustrations.

You can also use these questions if you have a lot of risk and are in doubt whether you should have a more conservative portfolio.

Many investors exaggeratedly raised their risk when the Selic was at 2% per year and, with the accumulation of losses, they question whether they did the right thing.

These can also be asked the same question, but with the opposite direction.

Continuous reflection should make you more confident about your investment decisions. With this, you will have more conviction and discipline to follow the plan you have drawn up to achieve your financial independence.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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Book: The Journey to Financial Independence

summary

Introduction
Understand how you will achieve your financial independence
Living on an income is the last step on the journey to financial independence
These are the biggest questions about the journey to independence

Part 1 Construction of the plan
Chapter 1 The first step in building the blueprint for financial independence
Chapter 2 How do you define the rate of return in your plan for independence?
Chapter 3 Find out what equity you need to achieve your financial independence
Chapter 4 On your journey to independence, don’t overlook the importance of this factor
Chapter 5 Understand the two ways I applied to increase my saving capacity
Chapter 6 If You Double This Factor, Your Equity Can Multiply Much More
Chapter 7 Connecting the dots to build your plan

Part 2 Assembling the portfolio to lead you to financial independence
Chapter 8 Before making any investment, define these two factors
Chapter 9 For your investments to beat the CDI, you need to make two choices; understand
Fixed Income
Chapter 10 You should not build an income portfolio if you want to reach equity to live on income
Chapter 11 Avoid these two common fixed income investor mistakes
Chapter 12 In fixed income, does it pay to invest in private credit in relation to public credit?
Chapter 13 Discover how to win the private fixed income premium, but with low risk
Chapter 14 This is the simplest way to plan your financial independence with fixed income
Chapter 15 With our interest rates, find out if it pays to invest in dollars
Variable income
Chapter 16 Taking a risk can accelerate your journey to financial independence
Chapter 17 What is multimarket funds and how did they come about?
Chapter 18 Understand how to select hedge funds
Chapter 19 Is Real Estate an Appropriate Investment for Achieving Financial Independence?
Chapter 20 Real estate funds are better investments than real estate, but most prefer the worst; understand
Chapter 21 These real estate funds are more like fixed income funds
Chapter 22 When selecting Real Estate Funds, be careful with this indicator
Chapter 23 Discover the five indicators that you cannot disregard in paper real estate funds
…
Chapter 26 Don’t Invest in Stocks If You Think This Way
Chapter 27 Stock Investing Is For The Long Term, But Not For Every Term
…
Chapter 33
Chapter 34 When Should I Trade a Risky Investment That Is Not Performing?
Investment funds and Private Pension
Chapter 35 Find out when it pays to invest in investment funds
Chapter 36 Understand the five steps to select investment funds
…
Chapter 37 Multimarket funds disappoint in the semester; what to do?
Deciding your investment portfolio
Chapter 38 This application lost CDI in the last 12 months. So why invest?
Chapter 39 Answer these 4 questions to learn how to deal with investment uncertainty

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