We are all emotional!

Rama Nimmagadda
6 min readJun 24, 2022


an unperturbed vendor in an otherwise busy market place — picture taken by me near Shaniwarwada, Pune at the auspicious occasion of Ganesh Chathurthi in 2019

“No matter how calm you are, no matter how long term an investor you are, no matter what your horizons, when the market is jumping around, you feel uncertainty in your gut and it’s hard to resist that.” — Peter Bernstein

If you are an equity investor or someone who follows stock markets, you are probably aware that markets have been tumbling for the last few months. In stark contrast to what ensued after COVID-19 until the end of 2021, 2022, thus far, has been a remarkable year for a different reason. While it has been mere humbling for few, quite a few have lost a lot of money in the markets — at least notionally. While I have little data to base this on, my guess is that a reasonable portion of these investors would have already made these notional losses real by selling their positions. If history is something to go by (and I believe it is), many of these people may never come back to markets — at least through direct route.

As I write this article, NASDAQ has fallen over 30% Year-to-Date (YTD), S&P 500 21%, Dow Jones 16% and Indian Indices — BSE SENSEX and NIFTY fell over 11%. But these are just the indices — a lot more stocks are traded on these exchanges and many of them have fallen in a bigger way. With inflation rising across the globe (much more so in the West), interest rate hikes, fear of recession, supply chain issues lingering and Russia-Ukraine war not ending, one should not be mistaken for being very pessimistic about future. Six months ago, most people were optimistic and many have reflected this sentiment by investing heavily into equities. The turn in sentiment was sharp enough and has been pervasive. For my part, my net worth fell over 16% and my equity portfolio over 25%. When I restructured my equity portfolio about eight months ago (moved into small and mid-cap direct stocks from equity mutual funds), I prepared myself mentally for various future scenarios including falls of 30%, 50%, 70% and also 100%. I worked out these scenarios in my suitably structured excel sheet and imagined the implications for my family and me. My equity portfolio restructure was conscious, deliberate, well-researched and well thought through. To boot, I invest through an investment manager who has been through 2–3 cycles and has a proven and stellar record of successful equity investing. Like a typical value-growth investor (a la Warren Buffet style), he runs a highly concentrated portfolio with extraordinary levels of conviction.

Despite all this planning and preparation, getting through this period has not been easy. I do not think any amount of preparation could have prepared me for the actual experience. This, I say at a time, when bottom is yet to be found. It is hard to be devoid of emotions — no matter how much conviction one carries. It is very, very hard to be like Dr. Michael Burry from the movie “The Big Short” (and also in real life).

So much panic for what could pass as “correction” in stock markets that is par for the course. Of course, we do not know yet how much further it is going to fall. My second biggest holding stock fell over 60% until now and this kind of fall is hard to digest.

The key point is that we are emotional creatures and that makes it hard to execute even well-laid plans when our convictions are tested. How can we deal with situations like stock market falls — particularly if they mean non-trivial degradation in your net worth?

“It’s worth reminding ourselves from time to time that gyrations in a stock price may tell us absolutely nothing about the prospects of the company involved.” — Peter Lynch

Here is what I ended up doing and how regained my sanity (at least for now)

  • Asset Allocation: My financial portfolio is my own version of a “dumb-bell” portfolio — 40% in highly conservative debt and real estate (I marked down the value of my real estate assets by 75% — in other words, I accounted for 25% of its value in my net worth). This does not include the house I live in (and which I own). Also, I do not have any debt obligations. So, there are multiple moats before it comes down to having to liquidate my equity assets — a good 10+ years runway. Proper asset allocation gives me ample breathing space; conservative estimates of my assets provide me a good margin of safety and reduces fragility significantly; Having no debt obligations reduces day-to-day stress
  • Knowledge: Having read books on history and on great investors — it helped to know that some of the great investors of the last century had to endure multiple periods of extreme and violent drawdowns — 75% and even up to 90%
  • Anchors of Conviction: Wealth creation via stock investing is an exercise in and a test of conviction. Serious wealth has only been created by those whose investment theses rested on business fundamentals of the companies behind the stocks — those that treated buying stocks as taking fractional ownership in the underlying companies. I believe that buying on the basis of stock price patterns does not lead to much wealth creation except for brokers, investment managers and other intermediary financial institutions
  • Emotions in check: Fall in stock prices is just notional — no sense in making these notional losses permanent unless conviction in the investment thesis is lost. From what I understand (and at the risk of gross simplification), stock price typically reflects: 1. Underlying business fundamentals 2. Sector specific factors 3. Overall macro sentiments. Business fundamentals generally do not change day to day. Sector specific factors (for example, airline stocks are priced lower than financial stocks even when controlled for business economics) are also fairly stable. Overall macro sentiments however swing wildly. One’s asset allocation should ensure that they should not have a need to sell stocks when prices are low due to general duress in the macros and I have arranged for this

“The real problem is not finding a good fund manager, it’s finding the right time horizon for your investing and what your temperament is for volatility.” — Peter Lynch

Few points to remember and keep remembering

  • As they say, volatility is a feature — not a bug. One who cannot stomach volatility has no business investing in stocks
  • Leverage (taking on debt to invest) looks good when the going is good but could squeeze one out in adverse times
  • It is important is expect periodic drawdowns but equally important to remember that no amount of preparation will help one be completely unemotional and objective when the drawdown actually happens. A coach or a mentor can help one negotiate tough periods
  • Steep falls are par for the course in stock markets and multiple falls are essential milestones on the way to wealth creation
  • Every “give” has a “take”…. great investors generate extraordinary wealth but what gives….in my view, diligence is a small component of the price they pay…. much bigger component is the exacting cost of periods of volatility

For those who do not invest in equities (and also for investors), the lessons here apply to various other pursuits of life — to anything where progress is non-linear. Couple of examples that close to my heart:

  • Career: All great careers are paved with a number of low periods/setbacks. Just check with anyone whose career progress you appreciate. In fact, how you deal with your low periods defines the trajectory of your career path
  • Running: Breaking through performance levels in running is a road full of setbacks — from overtraining to injuries to periods of doubt and introspection

So, if you are going through a tough period, do not waste the opportunity to observe how your emotions are playing out. This will be significant input in fortifying yourself and preparing for future challenges.


Thanks for your time. In this newsletter, I share my learnings that can help you improve your decisions and make meaningful progress on your goals and desires. I share stuff that I have personally experimented with. To this extent, this is not traditional “self-help” advice.

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