Building Your Nest Egg’s Prudently

``If you know the enemy and know yourself, you need not fear the results of a hundred battles.”--Sun Tzu

Lately, I have been astounded by the plethora of ebullient treatment the Philippines has been getting from various foreign research outfits and institutions. Imagine such remarks the “number ONE choice in the Far East”! It gives me goose pimples and makes me ephemerally feel like I am in a living in a prime investment haven.

It also marks a HUGE turnabout in mass psychology; an exoneration on my behalf. Back in 2002, when I turned bullish on the Phisix, such “reversal” theme was met with profound and revolting cynicism. The Phisix, as the consensus have it, was condemned to perpetual damnation. Nobody even wanted to discuss the existence of the market. Yet it was the best buying opportunity.

The Sage of Omaha, the world’s best stock market investor, Mr. Warren Buffett was absolutely right when he said that we should be greedy when everyone was fearful, and fearful when everyone was greedy. 2002 had been essentially, the pinnacle of FEAR.

Today, while I remain structurally bullish over the LONG-TERM potential of Asia’s financial markets and economic outlook due to the “wonders of globalization” and technology enabled macro developments, I have been alarmed by the sense of snowballing attachment to the gains of “yesterday”.

What has been seen as today’s triumphs have been projected to extend way into the future, which effectively discounts the risk elements attendant to the “subterranean” developments in the global financial and economic system.

In a list of cognitive biases, this is what is known as the Impact bias, where people have the tendency to overestimate how long they will emotionally benefit from present conditions.

And manifestations of such emotional attachments I can pick up even in my recent communications. For instance, because of the gingerly overtones of my outlook, a dear friend reacted to my pitch in displeasure, decrying of the loss of potential income for one’s “nest eggs”.

Nest eggs are basically built on portfolio allocations, principally designed upon one’s risk profile. Like any other financial markets, stock market investing comes with cost-benefit tradeoffs, where returns are hardly ascertained with consistent certitude especially over the short-term. As baseball Hall of Fame awardee, the witty Lawrence Peter “Yogi” Berra once said ``Prediction is very difficult, especially if it's about the future."

To build on one’s nest eggs, invest only the amount you can afford to risk. To believe that financial markets operate in a risk-free environment will only subject you to massive financial losses, if not mental angst or trauma. Gains today may not be there tomorrow. Risks do exist and most of the time the worst risk resides within us. As investor Bernhard Mast warned, ``First of all, you have to protect yourself from yourself".

We can also learn from the core tenets of Buddhism, where in the Four Noble truths, the ``first cause of suffering is due to our attachment to sense pleasure or desire”. Desire for untrammeled financial gains or plain vanilla easy money is a certain recipe for suffering.