God, give me the strength to buy and hold

April 25, 2024

On April 14, Iran attacked Israel directly for the first time, launching over 300 drones and missiles towards Israel. Israel and its allies intercepted almost all of the projectiles, preventing any damage. On April 19th, Israel retaliated with a limited attack on Iran. These tit-for-tat attacks have turned the already volatile Middle East into a tinderbox. It feels like the region is just one bad move away from full-scale war.

As is their God-given right, experts jumped into action and have started predicting World War 3 with vengeance. They had predicted the same war after Russia invaded Ukraine, but their hopes were shattered. All they want is just one world war, damn it!

Investors, on the other hand, as is their God-given right, will do what they always do: panic. It’s the same story every time. Putin or Kim Jong Un fart, and retail investors extrapolate the event to its logical conclusion: World War 3, Armageddon, and the end of times.

Hasn’t happened so far.

I started writing this post when Russia launched its invasion of Ukraine in 2022 but never got around to publishing it. The mood back then was similar to that of today: the conflict would spill over and World War III would begin. It didn’t, and since then, the Nifty 50 index is up 33%.

Invest like a stoic

You might have heard this in Hollywood movies when someone is trying to quit drinking. It is called the Serenity Prayer, and it’s used by Alcoholics Anonymous and other organizations helping people deal with addiction.

God grant me the serenity
to accept the things I cannot change;
courage to change the things I can;
and wisdom to know the difference.

The prayer was composed by a theologian, but I recently learned that versions of the prayer can be traced all the way back to Epictetus, a slave-turned-philosopher who lived between the 1st and 2nd centuries in Rome and Greece. He had said something similar, which is called the dichotomy of control:

We are responsible for some things, while there are others for which we cannot be held responsible. The former include our judgment, our impulse, our desire, aversion and our mental faculties in general; the latter include the body, material possessions, our reputation, status – in a word, anything not in our power to control

I can’t think of a better philosophy for investing and for life as well. What’s in your control is choosing the right stocks, funds, having a framework for risk management, allocating your assets sensibly, and most importantly, your behavior. What’s not in your control is Iran launching missiles, Russia invading Ukraine, the RBI hiking rates, the economy entering a recession, and the markets being volatile. All you can do as an investor is do the things you can and make peace with everything else.

While this may seem like a negative thing, it isn’t. Once you realize that trying to fight gravity is useless and instead learn to go with the flow, you become a better investor. It’s a weird kind of freedom.

“People don’t get what they want or what they expect from markets, they get what they deserve.” ~Bill Bonner.

Something bad is guaranteed every year

I love sharing this image often because it shows something terrible is always happening. If you think about it, most of these events could have spiraled into something horrible, but most of them didn’t. Despite all the flaws of humanity, when shit hits the fan, we are capable of solving problems.

This reminds me of a Morgan Housel post, in which he wrote that there’s a 1% chance of so many bad things happening in a given year that something will happen. Now, if you are an investor who worries about all the things that could go wrong, you have no shortage of reasons for not investing or selling.

If you are worried about bad things happening, then the logical thing to do is put all your money in a government bond or a fixed deposit and stay away from equities.

In the last five years alone, we’ve had three end-of-everything events:

  1. COVID-19: We were all supposed to die. We didn’t. Condolences to those who did.
  2. Russia invaded Ukraine: The West, with furious passion, was supposed to protect liberal democracy by invading Russia and teaching the murderous dictator a lesson that was supposed to lead to World War 3. It didn’t.
  3. Iran attacks Israel for the first time: Israel will attack Iran back, and the US and its allies will rush to Israel’s aid, while Russia, China, and North Korea will support Iran, which will lead to World War 3. So far, it hasn’t.

These are just the big events. There have been other major events that are negative for markets, like massive inflation, Fed tapering, a banking crisis in the US, the Evergrande default in China, and so on. Yet, here we are with the markets at lifetime highs. What does that tell you?

I don’t know if there will be a World War III, but neither does anyone else. If a world war does erupt, the Nifty falling will be the least of our worries. So, be a little optimistic. Pessimists sound smart, but optimists make money. Name one pessimist who has ever gotten rich by being bearish?

Nothing in life is as important as you think it is, while you are thinking about it. — Daniel Kahneman.

Whenever there’s panic in the markets, I think about this Innerworth post because it perfectly captures the irony of the stock market:

If you are a buy-and-hold investor, patience is a virtue. But many investors have trouble waiting, and if you have trouble waiting, you may impulsively decide to close out your positions too early. Few people would think of selling their house just because of a slump in the real estate market, but most investors don’t apply this thinking to holding long-term positions. One obvious reason is that the media doesn’t cover the daily change in your personal home every day.

You can’t go to the newspaper every day and look up the current daily value of your house, and thus, you can’t worry about how much its value has decreased compared to last week. Unfortunately, you can look at the value of your stock position every day, and every minute for that matter. And when you see the current value rise and fall, you’ll watch your emotions vacillate from euphoria to disappointment. If you look frequently, you increase the odds that you’ll take action, and if you act out of frustration, it is usually the wrong action. When you see it fall too far, you may feel frustration and close your position impulsively.

If you are going to panic, do it properly!

Look, no matter what people like me say, odds are you will panic. However, if you are going to panic, do it properly, don’t half a** it. Don’t just sell a part of your portfolio or tinker with it. Sell everything—your stocks and bonds. Redeem your EPF or PPF and buy physical gold. It’s World War 3, and everything is going to zero—the only thing you can rely on is gold.

That’s not all. Create a Twitter account called “@hardcorebhalu” and start tweeting that Nifty 50 is going to 500. You need to go all in.

Trying to reduce uncertainty is a road to ruin

Humans lived in a dangerous world for 99% of humanity. This is why our ancestors rarely lived past their 30s and 40s. The human brain evolved in a world where danger was always around the corner, so all it cared about was keeping us alive. Uncertainty was bad for survival back then, and to this day, our brain will do anything to get rid of uncertainty and the resultant stress and anxiety.

But the problem is that markets are inherently uncertain. It’s hard, if not impossible, to predict what the markets will do tomorrow. So whenever there’s volatility, the primitive human brain takes over, and all it cares about is reducing the uncertainty. Since one can’t control market volatility, the only other option is to sell investments to protect one’s capital. But to make money investing, you need to do the opposite.

In a way, you earn a higher return than safe investments like a government bond because you bear with this uncertainty. You need to be comfortable with the increased moisture content in your pants, and then resist your monkey brain as it urges you to do all the wrong things.

“The greatest tragedies occur when people forget about uncertainty.”
Peter Bernstein

Macro tourism

Of all the mistakes that investors make, investing based on macros without understanding them well has to be the most dangerous one. There’s a term for such investors—”macro tourists’. These types of investors obsessively track what’s happening around the world, from wildfires in Australia to reservoir levels in China to chatter about Russian politics on Telegram channels, to the Chilean constitutional referendum, to conflicts in the Middle East.

Consider these statements:

  1. The Fed is printing money and has inflated the greatest equity bubble in history. The MSCI World Index has a 100% correlation to the Fed balance sheet.
  2. The US and other developed economies have borrowed too much money. It will end badly, and equities will crash. It’s better to be in cash or buy gold.
  3. Deutsche Bank has $43 trillion of derivatives, and it’s almost bankrupt.
  4. Inflation in the US will remain high, and so will it in India. So the RBI may not cut rates soon, which is bad for equities.
  5. Property prices in China are crashing. Since the property is the largest part of Chinese GDP, there will be deflation. If there’s deflation in China, world GDP will slow, which is bearish for equities.
  6. The US yield curve is inverted, and every inversion is followed by a recession.

These are just a few examples of macro tourism that I remember at the top of my mind from the recent past. It’s hard to imagine investors making decisions with their hard-earned money based on such simplistic stories, but they do. Yes, there’s some truth to each of the stories, but they are just stories and not analyses. Investing based on the stories is like trying to stretch a tweet thread into a PhD thesis.

Macro investing has a certain romantic appeal to it. You look at the big picture, see something happening that you think nobody is seeing, and you can make a lot of money investing based on that. It’s a deceptive style of investing because it can make anyone sound smart. The dumb retail version of macro investing is like the parable of blind men and the elephant.

A group of blind men come across an elephant. Since they have no idea what an elephant looks like, they touch the elephant to get a sense of its shape and form. The first man touches the elephant’s trunk and says that it is like a big snake. The second man touches the elephant’s ear and says it’s like a big fan. The third man touches the side of the elephant and says it’s like a wall. The fourth blind man touches the elephant’s tusk and says that it is like a spear. You learn about one of the millions of things that are happening in the world and delude yourself that it alone will affect how the markets behave.

But what most retail investors don’t realize is that the markets are forward-looking. That doesn’t mean they’re good at predicting the future; they’re good at digesting the present. By the time you read something in the news, the markets have most likely digested it and priced it in.

Think about this dumb big-picture investing. To make money, you need to understand an event in all its nuance, estimate its economic and financial impact with perfect accuracy, figure out the precise ways in which a stock or sector will be impacted, and then outwit every other investor in existence to try to make money from it. It ain’t easy. Retail investors take a simple story and extrapolate the hell out of it. This isn’t analysis, but astrology.

By the way, the US markets have the longest history, and here’s how they have performed during and after major geopolitical events.

Here’s the market performance only during geopolitical events involving Israel. You would’ve made money if you did nothing or bought the dip.

The biggest mistake

At a fireside chat in 2022, author and historian William Bernstein asked the legendary journalist Jazon Zweig about some common mistakes he had seen his readers make. Jason Zweig gave a beautiful answer:

I think the biggest mistake of all is the mistake that is most human, that we all commit, every one of us, including you and me, at least you and me, and probably you. We’ll find out in a minute. Which is the inability to admit you made a mistake.

We’re all more pigheaded than we care to admit. There’s so much happening in the markets that it’s impossible to have a clear understanding of their various dynamics. More often than not, investors are not only operating under incomplete information but also under downright wrong information too. Their beliefs are colored by what they saw, heard, or read last. All this noise leads to massive cognitive pollution, making investing deceptively easy in theory but nightmarishly hard in practice.

In a way, we investors are set up for failure. There are also no immaculate investors. The best investors are not the best because of their god-like intellect. They’re the best because they have the humility and equanimity to recognize, admit, and learn from their mistakes. They are also smart enough to ensure that their mistakes don’t lead to ruin. Making mistakes is not bad, but not having the ability to recognize them and learn from them is.

“It’s when you’re not humble that you end up doing things that will make you humble.” Francois Rochon

Stick to the boring things

There aren’t a whole lot of guarantees in the market, but one guaranteed thing that has proven to work is investing in a diversified portfolio. Diversification is insurance against uncertainty and ignorance. Diversifying means accepting that you have no idea what might do well, so buy a little of everything. A simple, diversified portfolio of equity, debt, and gold performs remarkably well through good and bad times.


Another way of looking at this is the intra-year drawdown or how much an index fell within a year. This chart shows the calendar year returns of Sensex and the drawdown. Even in the years that Sensex went up, 10-20% falls were normal.

Here’s a log chart of Sensex which normalizes the price movements and the biggest drawdowns.

Just keep buying!

Financial analyst and researcher at Zerodha

Post a comment

  1. Rajendra says:

    Simply said
    Markets are meant to go up as whole world is working to increase GDP always
    Downsides are just speed breakers on the way


    Excellent read Bhuvan…..very insightful ….

  3. Rajit says:

    I would and do buy more when there is blood on the streets. Follow just two basic rules.
    Buy only as much as your cash flow can afford to be without.
    If and when the indices recover or grow, the stocks bought should be fundamentally strong enough to grow as well. Basically, no junk.

  4. Kabir Singh says:

    A slight correction. Iran retaliated, since it was Israel that attacked the Iran embassy in Syria. But otherwise, excellent article!

  5. Manoj Kumar Gupta says:

    Patience is the key.Nice well researched artical.
    Humanity has come a long way from cave’s man to now modern man.
    Walking and walking.
    So is the market,keep investing normally, slowly and market will also move on its own pace up and up

  6. Suhana says:

    Great article.

  7. Indranil Maitra says:

    Excellent write-up. What clarity in analysis! Enjoyed reading. A must to be borne in mind.

  8. Shreyas says:

    Superbly articulated.. awesome read .

  9. Most knowledgeable articles for all investors. Want more information.Thankyou. says:

    Super Article.

  10. Nitin Kerketta says:

    Hi Sir,
    I really liked your post. I am new to investing and had been learning about it from last 2-3 years. Though I invest in small amount in lager cap ( TCS, Asian paints, ultratech, HDFC, Reliance) every month and also when I see an opportunity. I had planned to keep buying for next 5 years then hold for another 5 years. Then start with a monthly SWP. Your post had me motivated and also gave Courage to newbies like me. Thank you for sharing such a detailed knowledge.

  11. Deekshith says:

    Wow! This is an extremely well-written article which has many fundamental truths of both life and stock markets. Kudos to the author!

  12. dhkrkh says:

    Sir agar sab log invest karenge to spend kaun karega? Aur log spend nhi karenge to stock price upar kaise jayenge?

  13. Leena says:

    Very good article and explained in simple words and highly optimistic manner. I would like to read more of your articles.

  14. Sathyakumar says:

    Could you double check diversified portfolio allocation, seems 2nd option is incorrect. When you are referring S&P500 is it BSE or DJIA

  15. Shrey Sharma says:

    Could you double check on Diversified Portfolio (D) allocation please In footer of Diversity and Chill! image.
    I’m wondering if there’s a typo in allocation – 60 + 30 + 20 + 20

  16. Arockia Dass says:

    Great article. Everything well said for an aspiring long term investor. Very simple, practical but with great illustrations.

  17. Senthil K chandhrasekaran says:

    The level of patience is merely required for every investor to hold it for a growing. Either you need a Money plant or Money Tree or Money Forest, and the choice is patience!!

  18. Vinay says:

    Good article… It’s the panic and greed that makes human follies. Panic at the right time and greed at the wrong time, both ending in losses. You need to become an investor monk to make money. Thanks.

  19. Aman says:

    Thoroughly enjoyed reading this piece!Good work👍🏼

  20. Anil kumar says:

    Nice article sir

  21. Sumit says:

    Hello Sir
    Your article was very interesting and informative. You really understand psychology of the investors very well. I agree with you on almost everything but on one point that we should diversify our funds,I disagree. I take concentrated risks. I select stocks on technical basis and then I buy huge quantities of if it matches with my parameters. I invest in small cap shares only and I have observed one very imp thing that Technical is the boss. You can never go wrong if you know how to study charts well. All the things align later if you hv studied charts well.

  22. Anil says:

    It’s the reality!

    I can resonate myself, I did the same mistake of selling off my entire portfolio on 19 Apr due to news of crash and downfall and since then market took a sharp turn the same day making me regret daily since after.

  23. BRIJ Singh says:

    Good and informative article.

  24. Vinayak says:

    Excellent work bro

  25. Lakshmi says:

    Fantastic alert 👍

  26. Sushantha says:

    Thanks for this insightful post Bhuvan