The ideal way to make money in equities is the old fashioned way. Invest in quality businesses (the Good and Clean companies) and stay invested for the long term
By Manish Jain
As an investor, the most challenging aspect of investing in equity markets is getting the timing right. Retail investors with limited resources often struggle to time their buys and sells correctly. What makes matters worse is that there are so many forces at play – business cycles, economic cycles, liquidity and news flow. So much is going around that it is almost impossible to separate the wheat from the chaff. The end result often is that we fall prey to two of the most common investing mistakes – a) Greed, and b) fear.
When markets are rising we feel a sudden sense of fear – the fear of missing out (FOMO as the millennial would say) and end up buying high, and when the markets are falling, we rush to book our losses. The end result – loss. More often than naught, retail investors like us end up on the losing side, eventually. This, unfortunately, results in equity being termed as a risky asset class, which is often a playing field for speculators.
The thing with trying to time the markets is that it is almost impossible to get right all the time. The variable factors make it even more difficult. Even the best in the business get it right only 5-6 times out of 10. So, the question that comes to mind is – What is the solution? Instead of trying to time the market, why not try and spend more time in the market?
Equity can be a wonderful avenue to creating wealth, but there is one unwavering commitment required – Discipline. The discipline to stay invested for long periods of time disregarding the business cycles. The approach will minimize your risks and yet enable you to generate steady returns, thereby creating wealth for you in the long term.
However, the whole approach needs to be paired with investing in businesses with a steady growth outlook. The thing is that as long as earnings continue to grow, the stock returns will automatically follow. Sometimes the journey is linear, other times it is not, but that should not be a major concern if you are a committed long term investor. Hence, ideally, you should invest in B2C companies as they have the power of their brand equity, which can be levered in the long term to generate steady growth.
The other thing that is needed is an obsession with quality. Quality comes at a price but always helps in the long term. Investing in a quality business will enable you to sleep peacefully over long periods of time without having to worry about your wealth vanishing overnight.
In short, be a tortoise of the investing world, don’t try to be the hare. The lure of a quick return may seem fairly alluring in the short term but often ends up bringing its share of risks. The ideal way to make money in equities is the old fashioned way. Invest in quality businesses (the Good and Clean companies) and stay invested for the long term. Ideally, a portfolio should never have more than 10-15 stocks. This is how we do it at Coffee Can.
Always remember – it is all about discipline.
(Manish Jain is the fund manager at Ambit Asset Management. The views expressed are the author’s own.)