From the past few weeks, I am returning back to my house after collecting a couple of things from Local grocery stores and supermarkets. My wife always insists me to move directly to the bathroom and take a quick shower. Why? One of the main reasons we are now going through difficult times in the history of mankind through the deadly coronavirus after all.
In the starting, I refused to do her and try to avoid going for a shower. And always kept on arguing that I had already taken a bath a couple of hours back. After all, I had already been very alert and taken all the necessary precautions against the COVID-19 virus when I am moving out of my place and also while returning back home. Frankly speaking, I was in no mood to go into the shower again.
My Wife replies know honey that you already have taken a proper bath and all the precautions. But, this safety precaution is not only about you. Because we have a kid and my parents also staying here with us. And for them you have to do everything best possible to keep them out of danger, wouldn’t you?’,
I guess my wife was absolutely right after all.
As I thought deeply there was no big upside for me for not taking the shower one i am back home. After all it would have saved me a couple of minutes of my precious time.
But the worst scenario or downside would be almost catastrophic or a disaster. There was a high level of possibility, no matter how small, I would have got infected with the virus. Just by avoiding a shower, It would have invited our family and me with great danger and also I was exposing my family to a massive risk from this Global Pandemic. And soon I realized that what is the reason I made this error of judgment.
I totally confused about the possibility of probability. My first viewpoint was the probability of me getting infected to the virus would be really very small. And I was assuming this judgment of not taking a shower based on this angle.
However, I was 100 percent wrong because it would be 100 % possible that I could have got infected with the virus. In a real sense, if you assume the possibility of infection was very low but it was only a possibility nonetheless with some scary consequences and can put your life at risk.
The exact things really occur when you start using investing theories and experiences to your day to day problems. The real credit goes to my wife by making me aware, understand and helped me see the light at the end of the tunnel.
In the investing world, the majority of people get crazy and confused between probability and possibility. However, unlike in the real world, getting too much obsessed with the possibility factor is what gets you into great danger.
If you deeply assume Anything is possible in today’s investing times. The world can break into war, hitting stocks all the way down to unseen levels or zero. Or a meteorite could hit planet earth and transform the whole world to rubble. And if you see about something like the ongoing lockdown crisis lasting for a couple of months and the economy taking long years to come out from the woods?
Each of these above-mentioned scenarios is a possible event that may or may not become real tomorrow. However, concentrating and assuming too much on every possible event in investing often leads to a big catastrophe.
I will give you a simple example of my very good friend. He was completely devastated by the great fall of the 2008 Lehmann Brothers financial crisis that he sold all his shares and then took a pledge that he will never invest in the stock market again. He made a crazy hypothesis or assumptions that there’s a huge possibility that we had started a long bear market and now we all will be stuck with the long recession and due to that he thought to have an ample amount of money in the bank than to remain invested in the stock market.
Well of course what a big mistake it turned out to be. He never looked at the market through the different area of probability, he would have realized that this type of bear markets normally don’t last for a very long time. It’s just a matter of time financial markets do recover and rebound to new higher levels.
The stock market recovered within 12 months of the Sensex and Nifty hitting a low in 2009 and most of the losses were recouped. An interesting fact, that it roared back almost 5-times over the next decade or so. So the bottom line is that he analyzed and interpreted the situation using the wrong foundation of possibility. However, the probability is the primary paradigm that helps and explore ourselves.
Today I really foresee the same situation occurring but it looks more serious and intense. Lots of investors and traders seem provoked by the coronavirus and believe the world is going to the part of infinite uncertainty. Absolutely right this is a possibility of course. But if you look the other way round the one with a very low probability and worth ignoring totally.
If you always depend and rely on probability instead of possibility will make enlighten that this is one of the golden eras in the last couple of decades to start investing money into valuable stocks safely.
One major risk factor involved, there is a huge downside in the valuations of stocks falling further. But it would be a wise decision to take and grab the opportunity of potential upside which is reasonably attractive.
So one important thing to understand and realize that does not get too much carried away of possibilities. Accept the bitter truth that there will always be possibilities we can do nothing about and that are seriously motivated under the belt.
One needs to concentrate more on probabilities dynamics. Explore the situation whether it is the best time to take a bigger exposure to equities and when it will be appropriate to sell and move towards the exits.
In real simple words, just keep on following a hardcore strategy that has been simply proven and given market-beating returns extremely profitable in historical terms and is very reliable which is ready to give the best desired results in future also.