Marzee Kerawala is a Certified Financial Planner with expertise in Income Tax and Investment products. Managing assets worth over Rs. 4 Billion, his firm ‘NiveshIndia’, designs Tailored Investment Strategy through Customised Financial Planning for individuals and NRIs, and also handles Treasury Management for corporates and SMEs. You can contact him at +91 9987567667 or Email: firstname.lastname@example.org [Website is www.niveshindia.in]
On 20th September, 2019, the BSE Sensex rose 5.3% or about 1921 points on a single day. As I write this article, it is up again by 2.85% or 1075 points. Effectively, in the past two trading sessions, the share market has gone up by 3000 points or has delivered about 8.5% returns. This two-day return in the stock market equals a two-year Fixed Deposit return, if you fall in highest tax bracket.
“The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham
Let’s explore a few investing truths crucial to the awareness of investors – the fundamental principles of investing. They hold true when markets are in a Bull Run, and they hold true even when they are in a perfect Bear Run. They will hold true, when the economy is in full bloom or when it is going through its toughest recessionary periods; as also with or without the Modi Sarkaar! These include:
- Time in the market is more important, than Timing the market.
- Equity, as an asset class, has the potential to deliver best returns amongst all other asset class.
- Best Equity returns are only made by Long Term Investments. Any short term gain or loss is speculation.
- Asset Allocation is the key to the success of all financial planning and market investing
Recently many Equity and SIP investors have stopped their investments and redeemed their money, fearing markets would drop further and to deploy it at levels lower than this – basically sitting on the fence for the opportunity to invest. There is no science behind pre-empting daily movements in stock markets.
What happens when you exit the markets to pre-empt a fall and miss out on some good days? Stock market delivers its rewards in big spurts and missing the best days could cost you heavily. Analysis conducted by Valueresearch Agency proves that missing even 10 best days over 20 years can impact your returns.
If an investor had put Rs 10,00,000 in HDFC Top 100 fund on 23rd sept 1999 the NAV was Rs. 23.46, which after 20 years, is Rs 485.37; the value of Rs 10,00,000 invested 20 years back is Rs 2.06 Crores – but if he/she missed the 10 best days in these 20 long years, it falls to 1.15 Crores! This emphasizes the importance of Time over Timing in the market.
The important question is why do most Indian Retail investors not profit in equity? They keep finding reasons like Modi Sarkaar, budget, monsoon, resignation of RBI governor, slowdown in economy, trade war between US and China, etc, for entering and exiting the market. Remember that after exiting the fund just before a great day, the calculations assume that investors re-entered the fund the very next day. But in practise, investors who jump out at a market peak, seldom have the stomach to get back in while it is still rising.
Waiting for a fall can lead to extended periods of staying out of the market. That would be even worse for returns. They actually come only after verifying that everybody has made money – and that is precisely the worst time to come in. Yet, in the short run, they find excuses to go out of markets on its slightest volatility. They discontinue their SIPs as originally planned for their financial goals; they withdraw their money when markets are in red. They don’t like being systematic and disciplined in their investing approach. The biggest reason investors don’t make money even after availing services of great fund managers and financial advisors is because they do not know how to manage their behaviour! We, at NiveshIndia, have always given lot of importance to behavioural coaching of our clients before we sign them as our investors. And I am happy to reveal that it really pays off for them!