Investing without a set goal and a framework is like trying to build a house with random materials put together without any coherence. It is obvious that without a proper design and careful construction based on civil engineering principles, the house would never be complete.

An Investor Credo or an Investing Framework is a set of rules that gives context and scope to our investing activities. It is best to write up such a framework so that we are always aware of our investing goals and can take decisions in a more conscious and responsible manner.

Without such a framework, we would be more inclined to take haphazard decisions and give into our biases such as FOMO (Fear of missing out), authority bias, survivorship bias, etc.

Every investor would have his or her own set of goals and methods to reach those goals. Therefore, there cannot be one, single, objective holy-grail document that would fit all types of investors. An investor has to take a journey within and find out what his or her strengths are and how best he or she can leverage and bring out these strengths.

Investor temperament is a rarely spoken about topic. But I strongly believe that it is the most important facet of successful investing. Everyone has a different temperament that depends on experience, nature, ability, circumstances and knowledge. This topic is vast and will be perhaps taken up in another blog post. A good framework should be built up from the fundamentals, which largely consist of the investor’s temperament.

Apart from being based on the investor’s temperament, a good investing framework should contain from bottom-up:

1. Instruments: What instruments are you OK with? Just Equity or just Debt? Just Mutual Funds or Direct Stocks / Bonds?
2. A numeric goal: At what point of earnings would you be satisfied? How much is enough? How much is practical? What are your needs that are to be catered for?
3. Methods to be employed while investing: Will you use fundamental analysis and/or technical analysis (charting)? Will you base your investment on study or tips? The method used to invest will have a bearing on the numeric goal.
4. Investment approach: Will you base your investments on tips or your own work? Will you trade intra-day or invest for 10 years? Will you try to find undervalued companies or take advantage of market psychology? Your approach will have to be consistent with your methods.
5. Risk control: How will you control risk? Will you employ a stoploss strategy, or can you bear a 60% drawdown? Since risk is always commensurate with reward, this will have to be based on your goals, methods and approach.

Having a solid investing framework has helped me very much in keeping away from FOMO, comparing with other investor’s returns and in staying calm during market panic. I take all my investing decisions based on my framework and try to adhere to its principles as much as I can.

I am very sure that you will greatly benefit by creating your own investing framework. This exercise will give you a lot of support and conviction doing bad times.

You can read my personal investing framework document as an example: My Investor Credo