Investing Behaviour

Letter to A Young Investor #10: The Most Important Thing That Counts in Investing

A quick announcement before I begin today’s post – I am hosting a new online Masterclass, titled “Thinking Clearly in A Market Crisis”, on Saturday, 19th April 2025, 7 PM IST Onwards.

The underlying idea is to help you deal with the messiness of market panics and crises, so you can protect your wealth, peace of mind, and long-term goals.

I had 100 seats available for the Masterclass, and now just 50 remain. Click here to know more and join.

I am writing this series of letters on the art of investing, addressed to a young investor, with the aim to provide timeless wisdom and practical advice that helped me when I was starting out. My goal is to help young investors navigate the complexities of the financial world, avoid misinformation, and harness the power of compounding by starting early with the right principles and actions. This series is part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund.

Dear Young Investor,

I hope you are doing well, and that the lessons we have covered so far have helped you in guiding you through the early stages of your investing journey.

I wish to start today’s letter with a tragic yet magnificent story from World War II that has stayed with me for years. It’s the story of Anne Frank.

Frank was born in Frankfurt, Germany but moved to the Netherlands for safety in 1934, five years after she was born. The Frank family hid in their basement with four other Jews when Germany took control of the Netherlands.

[Read more…]

Letter to A Young Investor #7: The One Financial Step You Can’t Skip

A couple of announcements before I begin today’s post –

1. The Sketchbook of Wisdom – Special Offer Ends Today: I have been running a special offer on The Sketchbook of Wisdom, that ends today. Click here to order your copy. You can also club it with my upcoming book, Boundless, and claim an even special offer. Finally, check out Boundless, which releases soon, and is available for pre-order.

2. Classroom Course in Value Investing: Admission is now open to the February 2025 batch of my most comprehensive classroom course in Value Investing, titled – Value Investing Blueprint. This residential course is scheduled to be held from 27th February to 2nd March 2025 at the campus of Pune-based FLAME University. The last date to apply is 15th January 2025. Click here to read more and apply if you are interested in joining this course. Since it’s a classroom course, seats are limited.

Dear Young Investor,

I hope you are doing well, and that the lessons we have covered so far have been helpful in guiding you through the early stages of your investing journey.

In my previous letter, I wrote about the idea of savings—the cornerstone of financial independence and the first step toward building wealth.

In today’s letter, before we get into the heart of the matter, I want to tell you a story about my friend. Let’s call him Sameer.

I have known Sameer since college. He was a bright young man, raised by his mother, and always had a plan for how his life would pan out over the next few years. He was one of the first from our MBA batch to land a job, one he had always wanted, and the kind that makes you feel like you’ve finally stepped into adulthood.

His salary was decent, his confidence was through the roof, and he had big dreams about the future. He started saving money every month from the very first paycheque he received and invested all of that in stocks. He was on the path of building wealth while many of us were still struggling to find real jobs—or so we thought.

Anyway, in the busy-ness of life, I lost touch with Sameer for a few months, and so was pleasantly surprised to get a call from him almost a year after he started his job. I was waiting to hear some good stories about his job and investments, but he started the call on a sombre note.

He mentioned how his life had taken a bad turn a couple of months back, when his mother had fallen seriously ill. The hospital bills had started piling up fast. If that wasn’t enough, he also had a car accident. He was lucky to escape unhurt, but his car was severely damaged and had to be taken to the garage for major repairs. Since this was an old car, Sameer did not have adequate insurance to cover the damage, and so had to pay out of his pocket.

As Sameer was telling me about his struggles, I asked him about his investments that would have helped him in these times. But he told me how the recent market crash had reduced the value of his stock investments by 30%, and that they were not enough to cover his mother’s medical bills and the car repairs. So, he had to borrow some money from his uncle.

This was my first brush with one of the most important legs of a sound personal financial plan: emergency funds—a financial safety net of readily accessible savings set aside to cover emergencies, like unexpected expenses or loss of income.

Sameer apparently had no emergency fund to fall back on, and so he had to sell all his investments at a loss. Plus, he had to borrow money.

Now, as he told his story, that wasn’t the worst part. The worst part was the helplessness he felt, knowing that all his careful plans had been undone by something as inevitable as an emergency.

I don’t tell you this to scare you. I tell you this because I’ve seen what happens when people, even smart, well-meaning ones, skip one of the most important steps in their financial lives: building an emergency fund.

Before you think about compounding wealth or finding the next great investment, you need to create a safety net. It’s not flashy or exciting, but it’s essential.

An emergency fund is like the foundation of a house. Without it, the whole structure can collapse the moment the ground shakes. Life is unpredictable, and that’s not pessimism—that’s reality. Cars break down. People fall ill. Jobs disappear. The question isn’t whether unexpected expenses will come your way, but whether you’ll be prepared when they do. An emergency fund gives you the power to handle these moments without derailing your financial future or losing sleep over how you’ll pay the next bill.

Now, how much should you save as an emergency fund? The answer depends on your circumstances, but a good rule of thumb is six to eight months’ worth of your essential expenses. So, if your monthly household expenses are around Rs 1 lakh, you can aim to have Rs 6-8 lakh in an emergency fund. Think of rent, groceries, school fees, and every other key expense you’d need to keep your life running, even if your income suddenly stopped.

If that sounds daunting, don’t worry. You don’t need to build it overnight. Start small. Save a month’s worth of expenses first, then build from there. The key is to start, even if it’s just a little.

Where should you keep this emergency fund? Somewhere safe and accessible, but not so easily accessible, like a regular savings account, where you might be tempted to dip into it for non-emergencies. In my view, bank fixed deposits and liquid funds that are offered by mutual fund companies are great options.

Resist the urge to invest this money in stocks or mutual funds—it’s not meant to grow, but protect.

The beauty of an emergency fund isn’t just practical. It’s psychological. It gives you peace of mind. You walk a little taller, knowing you’re ready if something unexpected happens. And you know what? That confidence, that peace, will make you a better investor. You’ll take well-thought-out risks because you know you have a cushion to fall back on. You’ll invest for the long term without the fear of needing to sell just because there’s an emergency.

My friend Sameer learned this lesson the hard way. But you don’t have to. You’re just starting out, and you have the chance to build your financial life on a solid foundation. Start small, but start today.

Calculate what your emergency fund should look like and take the first step toward building it. It might not feel as exciting as picking stocks or watching your investments grow, but I promise you, it will be one of the most important decisions you ever make.

I wish you all the best on this exciting journey.

Warm regards,
Vishal

Disclaimer: This article is published as part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund. All Mutual fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (‘RMF’). For more info on KYC, RMF & procedure to lodge/ redress any complaints, visit dspim.com/IEID. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Also Read:

The Psychology of Investing #6: Beware the Silent Killer

The Internet is brimming with resources that proclaim, “nearly everything you believed about investing is incorrect.” However, there are far fewer that aim to help you become a better investor by revealing that “much of what you think you know about yourself is inaccurate.” In this series of posts on the psychology of investing, I will take you through the journey of the biggest psychological flaws we suffer from that causes us to make dumb mistakes in investing. This series is part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund.

Not a year passes without the sobering news of a distant relative or acquaintance losing their life in a road accident. This reminder flashes before me every time I start my car. And so, I pause to say a silent prayer for a safe journey even for a short trip to the neighborhood.

My wife, however, carries an even deeper fear of road mishaps, especially when it comes to two-wheelers. A few years ago, after considerable persuasion, she reluctantly “allowed” me to fulfil a long-held dream: owning a Royal Enfield motorcycle. That day felt like a personal milestone. Yet, the joy was short-lived. Just three months later, she “forced” me to sell it off after two of our neighbours were seriously injured in motorcycle accidents.

[Read more…]

Letter to A Young Investor #6: A Powerful Habit That Changes Everything

Dear Young Investor,

I hope this letter finds you in good spirits and reflective about the lessons we’ve covered so far.

In my previous letter, we talked about the importance of “standing alone”—of learning to trust your own judgment and take responsibility for your decisions. It’s a vital skill, especially in today’s noisy world, where everyone has an opinion about everything (including yours truly).

[Read more…]

The Psychology of Investing #5: What’s Your Internal ‘Yes-Person’ Saying?

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life.

This is a masterpiece.

– Morgan Housel, Author, The Psychology of Money

Get Your Copy Now

We all have a natural instinct to protect ourselves from admitting we’re wrong.

Whether we make a mistake that hurt someone, cost us money, or just made us look foolish, saying, “I messed up,” doesn’t come easily to us.

In fact, the bigger the stakes, the harder it is for us to face our mistakes head-on. In such situations, we go into a defense mode, trying to justify what we did rather than accept the truth.

[Read more…]

20 Timeless Lessons for Young and Old Investors

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life.

This is a masterpiece.

—Morgan Housel, Author, The Psychology of Money

Get Your Copy Now

Investing is a lot like riding a bicycle for the first time. You start off feeling wobbly, unsure of what you’re doing. Every little bump feels like it’s going to throw you off. You hold your grip on the handle too tightly, overreact to every movement, and fall a few times. But if you stick with it, you slowly find your balance.

You ultimately realise it’s not about avoiding every bump but learning how to roll through them without crashing.

Over the years, I’ve had my fair share of crashes in the investing world. Some left me with bruises (mostly to my ego), while others taught me lessons I wouldn’t trade for anything. Some time back, I shared some of these lessons on Twitter—simple truths for both new and experienced investors that might help make the journey a little smoother.

This isn’t some definitive guide or magic formula. Think of it more like a list of signposts—reminders that might help you find your balance, especially when the market gets rough.

Whether you’re just starting out, or you’ve been riding the investing bicycle for years, I hope these lessons help you stay steady when it matters most.

Here they are.

[Read more…]

Letter to A Young Investor #5: You Stand Alone

Dear Young Investor,

I hope you are doing well, and that the lessons we have covered so far have been helpful in guiding you through the early stages of your investing journey.

In my previous letter, I wrote about the art of waiting—about how patience can be one of the most powerful tools in investing. Today, I want to talk to you about something just as powerful but perhaps more challenging.

It is about the importance of “standing alone.”

[Read more…]

The Psychology of Investing #4: The Art of Getting Less Prejudiced

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life.

This is a masterpiece.

– Morgan Housel, Author, The Psychology of Money

Get Your Copy Now

(Special Diwali Discount till 10th Nov. 2024)

Niels Bohr, the Danish physicist who made foundational contributions to understanding atomic structure and quantum theory (for which he received the Nobel Prize in Physics in 1922), once proposed that the goal of science is not universal truth.

Rather, he argued, the modest but relentless goal of science is “the gradual removal of prejudices.” We start with grand ideas about the world, but as science advances, these ideas are broken down, and we realise we’re left with fewer certainties.

Take Copernicus’s discovery that the Earth revolves around the sun. It gradually removed the prejudice that Earth was the centre of the universe, shattering an age-old belief that had once seemed unshakable. Or Darwin’s theory of evolution, which gradually removed the prejudice that humans were a special creation, separate from the rest of the species. We had to rethink everything about our origin.

Newton’s discovery of gravity gradually removed the prejudice that objects were attracted to the earth because it was in their nature to do so. Then there’s Louis Pasteur’s discovery of the germ theory, which removed the prejudice that infections and diseases were somehow a result of divine punishment rather than the activity of microorganisms.

Then, much later, Daniel Kahneman and Amos Tversky dismantled another cherished assumption — that humans are rational animals. Their research on cognitive biases showed that our choices aren’t always logical, especially in areas like investing. Their work on behavioural economics and human irrationality gradually removed the prejudice that humans make financial decisions based on reason.

These shifts are more than facts. They’re complete overhauls of how people understood life and the world around them. And they weren’t quick; they took decades, even centuries.

Now, even when you move beyond science and look at life in general, being a lifelong learner serves a similar purpose – that of the gradual removal of prejudices we carry in our minds and the lenses with which we see and judge situations and people around us. We all start with our beliefs, moulded by family, culture, and experience. But it’s only by opening ourselves up, by being humble enough to unlearn, that we start to shed these layers of preconceptions.

I have lived with and suffered through several prejudices over the years, which were dispelled one after the other as I walked on my journey of lifelong learning. Every single time, I thought I had a clear understanding of something, only to later discover my grasp on it was incomplete or even completely wrong. And I know this process won’t stop.

Every time I started believing I knew how the world was, the world showed me more and more ways in which I was wrong.

I learned that I was wrong about what things are. The things I took for granted as “the way things are” were just one way to see them.

I learned that I was wrong about how things work. Even in fields I thought I understood well, there were layers of complexity I was blind to.

I learned that I was wrong about who people are. You meet someone and form opinions. And then time and experience reveal the many shades and stories that make them who they are.

When I started my investing career in 2003, I held onto a set of beliefs without questioning them. I believed:

What Gordon Gekko said in the movie Wall Street, “I don’t throw darts at a board. I bet on sure things.”
That greed was indeed good, and that success required a certain ruthless, profit-driven mindset.
That stocks were blips on the ticker, just numbers to be bought low and sold high, rather than pieces of actual businesses.
That the only thing that could help me succeed as an investor was my skill in stock picking—the ability to find that perfect stock that would make it all worthwhile.
That making money from stocks required me to just be rational in my analysis.

These prejudices were gradually removed as I read and learned from Graham, Buffett, Munger, Fisher, Taleb, Kahneman, and others who approached investing as more than just a game of numbers. These thinkers challenged me to think beyond returns, to understand the nature of risk, and to see investing as a way to build sustainable wealth, not a quick win. Over time, I came to realise:

There are no certainties in investing, only uncertainties.
Greed is not good for an investor, and neither are fear and envy. These emotions cloud judgment and lead to impulsive actions.
Stocks are representative of businesses, and to do well, I must think and act like a business owner.
Investing is largely a game of luck, and that skill shines through only in the long run. Short-term wins can easily make you feel invincible, but it’s often just randomness giving you a temporary boost.
Making money from stocks required much more than rational analysis; it needed emotional discipline and a great control over my behaviour. You might know the theory, but in the heat of the moment, emotions take over.

After 20+ years of being an investor and learner, I still have my prejudices and continue to look at the world with my own tinted glasses. And I am sure that will continue till I have my thinking faculties working intact (for it’s our prejudices that make us humans). No matter how much we learn, our biases never disappear; they only become quieter, easier to spot.

But as I continue my learning journey and keep unburdening myself with parts of my ego and blind spots, I also believe that I may see a greater light coming from the end of the tunnel of my ignorance. Learning doesn’t make us perfect thinkers; it just pulls back a few more layers, one at a time. And that possibility—that learning can clear a bit more fog—is what keeps me going.

I may never see things completely without bias, and maybe I’ll never truly “arrive,” but I believe I’ll become less prejudiced.

My life and thinking may get better, little by little, as I unlearn and relearn. And if you’re anything like me, I believe the same for you too.

Just keep learning.

The purpose of this series is to help you gradually get over your own prejudices and become a better investor. Each step forward clears a bit of that fog, bringing clarity to both life and investing.

Disclaimer: This article is published as part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund. All Mutual fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (‘RMF’). For more info on KYC, RMF & procedure to lodge/ redress any complaints, visit dspim.com/IEID. Mutual Fund investments are subject to market risks, read all scheme related documents

Letter to A Young Investor #4: The Art of Waiting

Dear Young Investor,

I hope you are doing well and that the lessons we have covered so far have been helpful in guiding you through the early stages of your investing journey.

In my previous letter, I wrote about the remarkable power of compounding—how time and consistency can turn small investments into something significant. Today, I want to introduce you to a closely related concept that holds the key to allowing compounding to work its magic.

[Read more…]

The Psychology of Investing #3: When Control is Just An Illusion

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life.

This is a masterpiece.

– Morgan Housel, Author, The Psychology of Money

Get Your Copy Now

The Art of Thinking Clearly is an excellent book by Rolf Dobelli. In one chapter, Dobelli shares a couple of instances –

Every day, shortly before nine o’clock, a man with a red hat stands in a square and begins to wave his cap around wildly. After five minutes he disappears. One day, a policeman comes up to him and asks: ‘What are you doing?’ ‘I’m keeping the giraffes away.’ ‘But there aren’t any giraffes here.’ ‘Well, I must be doing a good job, then.’

A friend with a broken leg was stuck in bed and asked me to pick up a lottery ticket for him. I went to the store, checked a few boxes, wrote his name on it and paid. As I handed him the copy of the ticket, he balked. ‘Why did you fill it out? I wanted to do that. I’m never going to win anything with your numbers!’ ‘Do you really think it affects the draw if you pick the numbers?’ I inquired. He looked at me blankly.

[Read more…]

Letter to A Young Investor #10: The Most Important Thing That Counts in Investing

Letter to A Young Investor #7: The One Financial Step You Can’t Skip

The Psychology of Investing #6: Beware the Silent Killer

Letter to A Young Investor #6: A Powerful Habit That Changes Everything

The Psychology of Investing #5: What’s Your Internal ‘Yes-Person’ Saying?

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life.

Become a wiser investor in just 5 minutes

20 Timeless Lessons for Young and Old Investors

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life.

Letter to A Young Investor #5: You Stand Alone

Become a wiser investor in just 5 minutes

The Psychology of Investing #4: The Art of Getting Less Prejudiced

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life.

Become a wiser investor in just 5 minutes

Letter to A Young Investor #4: The Art of Waiting

Become a wiser investor in just 5 minutes

The Psychology of Investing #3: When Control is Just An Illusion

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life.

Become a wiser investor in just 5 minutes