Understand your own psychology

To be a successful investor you need to understand your own psychology, if losing money makes you miserable, you should use a very conservative pattern of saving and investment.

- Charles Munger

As Munger says, for any investor to be successful, he should first know his tolerance level. Investors of mutual funds and stocks may have already experienced some sort of volatility. But the same investors who tend to think they have the capacity to tolerate the volatility start to panic once they see their portfolio in red 50% more.

Few cycles of investment volatility will help them overcome this fear factor, but it is the responsibility of their advisors to guide and hand hold these clients when the extremes occur in the markets. The investors would not face this situation if they have gone through risk profiling to understand their tolerance levels.

In my experience, I have seen properly guided investors won't tend to panic and trust the advisors guidance and understand the short term nature of market movements.

The same rule is applicable to non-individual investors like corporates as well.