In 2017, the BSE Sensex has touched an all-time high level. However, only six months ago, there were talks and apprehensions on the state of the economy and the effects of demonetisation on the markets and economy. So, to predict and forecast is to court peril. Many investors who are feeling left out in the rally, would be wondering what they should do now. History gives us an insight. But then, it is only data of what had happened in the past and how as an investor we can use this data effectively and efficiently.
As the stock indicies started moving south in November and December last year, doomsday was the prediction. But then, what has happened is exactly the opposite. Many investors refused to stick to the process, went into hibernation and stuck to the cash position. With every market rise, there was an element of regret – regret of missing and at the same time hope that the markets would give an entry point, by moving south again. But then, decisions are made real-time based on the available data points. It’s not a matter of ifs and buts.
The process is the approach and history does helps us out with the lessons. The 2003-2007 bull run was a one-way street of higher highs, when considered from trailing yearly returns during the period. It does not mean that at no time the indices went south. At least on two distinct occasions, the indices retreated by more than 10%. But then it was only a blip. Over a five-year period, the Sensex has moved from 3000 levels to 21000 levels. Many of the small-caps and mid-caps displayed much larger share of growth.
Is the current run similar in nature? Only time will tell. But then, as stated earlier, decisions are made in real time with the available data sets. One thing which is noticeable in both the instances is trend.
Make trend your friend. Do not fight against the trend. You can have your own process and analysis. And the trend should form part of the tools you carry. With other asset classes in India displaying a flat to negative growth in the past 24 months, money has been pouring into mutual funds schemes and financial products. Domestic investors are also pouring in their investments on a monthly basis as well as lumpsum investments.
What is happening in the foreground or the background should not influence the individual investment process. Your needs and goals are personal and you should have your personalised process in place. Basing your investments on your goals, time horizon, liquidity needs is the approach.
Do not get distracted by the new highs of the indicies. Asset allocation—the cardinal principle in the investment management—should be adhered and not ignored. There is always a temptation and the urge to partake of the gains and get greedy.
In that case, having a core and satellite portfolio, will help curb the itch. Keep the process in the core portfolio and do not deviate from it. And letting go of your emotions in the satellite portfolio, will keep the activity and action you crave for. But then, chasing returns is not the reason for investments. Reaching the goals and having the money when you need them, are the reason. Keeping the emotions in check and sticking to the process will be the challenge.
The writer is managing partner, BellWether Advisors LLP