Lessons For Stock Market Investors From The India’s Ancient Wisdom

Market volatility has surged following global tariff announcements, testing investors' resilience and risk appetite. This piece explores how volatility shapes returns, the behavioural traps investors face, and how ancient wisdom from the Patanjali Yoga Sutra - through Abhyasa (practice) and Vyragya (detachment) - offers valuable insights for navigating uncertainty

There has been turmoil in the market in the last few weeks. The volatility increased due to the US announcement of tariffs across multiple nations. The immediate impact would be the supply chains, which have slowly adjusted from the post-pandemic realities amid the multiple ongoing conflicts. Businesses began to counter or adjust to the new reality, and so the markets started reprising to the evolving situation, adding further volatility.

What investors should understand is that risk isn't about losses always, at least till realized, but it means the implied volatility associated with an asset class. That's exactly why we pay a premium, if it's not in terms of an additional cost/price then it's in the form of putting up with the gyrations or vagaries and even in terms of time. The risk premium is the associated volatility one is willing or accepting to enjoy better returns over time. This trade-off in the short term is the risk and inequities that one should be prepared to accept for the returns in the medium to long term.

While every equity investor aspires to make profits out of their contributions, the clear distinction for their success lies in their behavior. Those investors who would come to terms with the market volatility and accordingly adjust their behavior trump those who respond and react to the changing situations. Each investor comes with their baggage of history, biases, and awareness.

Another aspect of the behaviour of investors is their belief in understanding risk and volatility. Many assume that by reading books, and listening to other investors' experiences (podcasts) they are prepared for the situation. Rarely is the case, as information doesn't translate to knowledge, and it certainly doesn't turn into wisdom to act in those situations. Even if they were told or taught that equity markets are volatile/risky, the understanding might differ from each one. For instance, an investor who began his investing experience post-pandemic, their understanding of volatility could be diluted to the brief periods of corrections even during the crisis of war, inflation, and supply chain disruptions. The near-synchronous heavy lifting by both the central banks and the govt through policy interventions led to asset mispricing and misunderstanding of risk.

So, when the actual event i.e., huge market corrections happen, particularly contrary to their belief and extending for prolonged periods, then they could have a reality shock resulting in a panic behavior. While reading investing books and/or listening to experienced investors/advisors help control or correct the investors' behavior, it wouldn't eliminate their biases, completely. Particularly that of recency bias, overconfidence, loss aversion, and anchoring which could deeply influence the individuals unknown to them.

It's not just the rooky investors that tend to fall prey to these conditions, even those seasoned investors who've witnessed and experienced similar situations would tend to revert to this behavior. The remission in their behaviour could be not just due to them mastering the bias but partly attributed to the improvement in the conditions that otherwise could've triggered. According to the Patanjali Yoga Sutra, the modulations of the mind can be only controlled in two ways. Abhyasa and Vyragya. The latter doesn't mean being insensitive to the surroundings or renunciation of responsibilities but being actively involved with the world yet remaining undisturbed inside. This is a state of mind than running into seclusion. It could be achieved probably through the first step, Abhyasa i.e., practice. A repetitive action that corroborates and bolsters the wellness to master the control over mind. I want to draw an analogy here to investing in this regard. We can't possibly do much to our history or past that builds the various biases into our behavior but practice and awareness of our actions (and the intents behind them) make us improve on them. Well, the goal is to master them but at least we don't fall prey to them with regularity.

While investing in stocks, many people spend a lot much time deriving strategies from fundamental analysis, technical analysis, even a combination of both, and more. They use extensive research, document their findings, conduct back-testing and accordingly come out with a possible winning tactic. Similarly, one should document their thoughts, feelings, and emotions when making decisions in each of these instances. Then investors would be able to revert to the reasons (including emotions) why they took a particular call (buy/sell/hold/add) in a situation. Each time when they look at these notes, gives them the insights to act with rationale and builds critical thinking thus minimising the emotional perils.

This Abhayasa could help investors come to terms and possibly attain Vyragya to the market turmoil.

(The author is a partner at "Wealocity Analytics", a SEBI registered Research Analyst and could be reached at [email protected])