It?s the season of the wham-bam style of cricket. Twenty-20 fever is in the air, first with the ongoing IPL and then with the upcoming T20 World Cup. With last-over, nail-biting finishes ruling our TV sets, this might not be the most opportune to talk about test cricket, but I just couldn’t resist noticing a glaring similarity between cricket and equity investments.
Have you noticed how an ideal test match innings is built? The batsman is patient; he takes his time, he plans and is almost always thinking about a long stay at the crease.
On the other hand, in a T20 match, the batsman has little time, he’s not concerned about how long he stays at the crease and is looking for an opportunity to score runs off every delivery.
I guess you must have figured out where I am going with this. An equity investor should be a test match batsman, but almost all equity investors have become T20 batsmen.
Investing in equities – via stocks or funds – should be for the long-term. Like a test batsman, you should be patient and dedicated – investing a fixed amount every month without bothering about the markets. But instead, what a majority of us tend to do is try to predict and time the markets to make easy money. But one can’t hit a six off every ball and when one gets out trying to do so, he losses a lot of opportunities that would have led to steady growth.
Such is the fate of a number of investors who stopped their SIPs or redeemed their investments sometime last year. And now that the markets are giving signs of recuperation, they seem to be in a fix. Since March 9, the stock markets have risen by about 45%. Most stocks are up by around 20 to 60% and even though the equity funds haven’t managed to match their benchmarks, they too have posted gains of around 20 to 60%. Now, the investors who shunned equities last year are left in a lurch. They timed the markets and got out and are now ruing the lost opportunities.
However, what is worse is that most of them don’t know what to do now. They don’t know if they should wait for the markets to dip again or jump into the current rally before it gets too high. There seems to be no clear path leading to either of the two options. But irrespective of what they do, such investors will only be repeating their folly – they will only be timing the markets once again.
What investors should do is an advice that has been repeated over and over again. Don’t try to time or predict the markets. If you have been guilty of it, then stop at this very moment.
A T20 batsman never knows what will happen in the next over, but it’s in his interest to predict the opposition. On the other hand, it’s not at all in your interest to predict the markets.
You should just be investing steadily in them like a test batsman would steadily score runs, no matter who bowls what at him.
Remember this: equity investments are like test match cricket – slow and steady always win the race.
The author is CEO, Value Research
