A Guide To Better Investment!

A diligent investor would be able to remain stoic even during market gyrations thus they benefit making irrational decisions. This helps the investor to approach markets rationally and to make judicious reactions

There is so much of news flying around and adding up to the current negative narrative on the equity markets. One might sight the China’s stimulus measures, US Dollar resurgence, slowing growth and stubborn inflation, etc. to bolster their argument or to explain the recent fall in the equity market. But just till couple of months back, the narrative was completely different with India is TINA (there is no alternative), resilient economy, growing corporate profits and green shoots in private capex, etc. We could identify or justify the earlier market performance with some or other reasons.

So, it makes no sense for one to worry about the market movements in the short term and in the longer run the equity markets have trended upwards. Hence there’s always no new wisdom to share or insights to find if the investor respects the laws of investing. Here are a few of them I keep always following.

Now is the right time: Time spent in the market has always trumped over timing the market. While starting young has all the advantages, one can’t go back in time. So, don’t sweat over timing, now is the right time to invest if not yesterday. If one were to gain from the eighth wonder, compounding, then it’s not about pursuing higher returns but remaining invested undisturbed for long periods of time. This has resulted in better returns than trying to buy and/or sell timing the market.

Knowing what you’re owning: This is another simple yet profound step that helps investors a long way. One should be aware of where their capital is allocated as it helps them to remain calm during volatile periods. If one has invested in a particular stock and they’re not aware of its business, they wouldn’t be able to comprehend why the price movement leading to misjudgments.

Discipline: Design and stick to a pattern while investing. A diligent investor would be able to remain stoic even during market gyrations thus they benefit making irrational decisions. This helps the investor to approach markets rationally and to make judicious reactions. There’s not one single way to succeed in investing so find your path. You don’t need to employ multiple strategies to generate wealth but stick to that which works for you.

Diversify: Asset allocation based on the timelines and risk appetite has not only provided better risk-adjusted returns but also better experience for the investor. The mellowing of volatility in the portfolio could only be achieved through diversification while attaining capital appreciation. The diversification along with allocation limits is a good recipe for success. The tweaking of allocation limits augurs well to avoid pitfalls even as it allows to take advantage of the opportunities. So, for a longer time horizon, the market falls could turn out to be opportunities than threats, to load on to the portfolio. However, that must be in-line with the risk appetite.

Understand and manage risk: Most investors either underestimate the risk or overestimate their tolerance to risk. Particularly true when the markets are buoyant. They tend to often confuse their risk capacity to their tolerance. While many have a higher capacity to take risk i.e., enough cashflows to survive a downturn or have alternate sources of income they usually lack equal risk tolerance i.e. the willingness to take risk. This is more of a psychological than quantitative metric. So, one must objectively assess their risk and their behavior towards events involving risk to avoid any future regrets.

Control over debt: Debt could act as an adrenalin rush. One should be wise to use it and have a tab on proportion of debt, especially why the debt is considered at the first instance. Don’t overshoot borrowing and certainly not for making investments or speculation. Appreciate luck: Risk and luck are two sides of the same coin. Acknowledge and give chance it’s due in life. Of course, as Colins said increase the surface area of luck through diligence and consistent work.

(The author is a co-founder of “Wealocity”, a wealth management firm and could be reached at [email protected])