Essentially, investing in equities ?through funds or stocks?is an easy thing to do. You pick the well performing fund or stock, invest in it at the opportune times and reap benefits. Simple, isn?t it? I?m sure you?re grinning right now, wishing skeptically that investing was indeed so easy. Anyone who has followed the equity markets through the past couple of years (which means everyone who reads any kind of newspaper), would be aware that equity investments are more of a hassle than they should be. But the fact is that we, the investors, are as much to blame for that as the economic conditions.
I say this because we tend to worry and go after what is out of our control and ruin the tasks that are under our control. Like, choosing a good fund or stock is under our control, we can do that well enough. But trying to decide on the most opportune time to invest in this fund or stock is something that almost none of us can vindicate. The way the broad markets move is dependent on a wide array of issues and factors, and trying to predict their movement is nothing short of foolhardy. And yet we keep trying to do that, which is where most of us falter.
The truth is that the movements of the market can be predicted only in hindsight. An oxymoron, I know, but that is how things are. The fact that the markets crashed in January 2008 seems so obvious now, as obvious as the sub-prime crisis turning into a global meltdown or the sudden recovery that was seen in March 2009. Under retrospection, the occurrence of these events seems natural. But when they took place, no one anticipated them, simply because no one can. Not retail investors, neither fund managers, nor investment experts, none of us can accurately keep predicting the market?s movements, let?s just accept that and figure out how we can still keep earning from our investments.
The simplest thing to do is pick a good fund and invest in it for the long term. Picking a good fund or stock is relatively easy. There is enough data and analysis available today from various sources to come to a decision about that. The next thing to do is set a goal for your investments and keeps investing regularly till then.
But what if your goal comes right after a sudden crash? Like, for example, what if your goal ended on February 2008, right after the markets crashed? Your investments would have been eroded in one go, you would be lucky to be left with your principal invested amount. What should an investor do in such a scenario? Two things: the first would be to not succumb to the urge of redeeming. You should take the loss in your stride and either continue investing or just stop, but you shouldn?t redeem.
The second thing to do is what you should be doing in the first place. As your goal keeps getting closer, you should gradually move your investments from equity to debt. This would ensure that you not only book profits but also are safeguarding against sudden market gyrations.
Apart from these two, the one thing that every investor should do is stop trying to time the markets. It?s a futile exercise, and gets you nowhere.
Author is CEO of Value Research