Going into 2019, there is a marked degree of caution and fear amongst investors. In many ways it augurs well for investors as markets tend to do better when expectations are low.
2018 has been a volatile year and in many ways a negative one for investors across various asset classes. After a stupendous 2017, the year gone by was a reality check and marked a return to mean averages. It demonstrated once again that extreme market sentiments, whether positive or negative, do not last too long.
Going into 2019, there is a marked degree of caution and fear amongst investors. In many ways it augurs well for them as markets tend to do better when expectations are low. Markets can and always do surprise us. However, these are the 5 mistakes or wrong perceptions which investors may keep in mind for this year:
1. Wait for election results to decide on investment plan
Ask any investor today and he has elections on top of his mind. He/She is waiting for May, 2019 before deciding on where to invest. Now elections do effect us in many ways, including economically. However, the main impact is on politics and the social discourse going forward. While a stable, progressive government is always desirable and beneficial, majority of the reforms have already happened and economic progress can really not be stalled or hampered with in any significant way by any government going forward. Hence the impact of elections on markets can at best be marginal in the medium to long run. In the short term it can lead to volatility. However, the election outcome and the accompanying volatility is nearly impossible to predict. Therefore, to postpone your investment decisions because of some short-term volatility, which may or may not happen, does not make sense at all.
2. Getting too optimistic or pessimistic about the future economic outlook of India. (In other words, getting swayed by the majority sentiment.)
India is too big and democratic a country and economy to either gallop much faster than the rest of the world or completely collapse. An economy as large as India can only move forward at an astonishing pace if draconian laws and systems are in place. China the only large economy that has dramatically progressed has done so under a dictatorship. This not being the case here, progress will always happen in measured terms. On the positive side, democracy and large size also ensures that you will not collapse like a Venezuela. Hence any extreme sentiment in the capital markets will always be a temporary phenomenon. Use extreme bullishness to pare down your exposure and panic to buy aggressively. This is even more relevant in the coming year as volatility is likely to be high.
3. Giving too much importance to global economic news and forecasts
India is largely a domestic economy and impact of global economic outlook is marginal. Many investors express concern over the US-China trade war, slowdown in global economic growth and various other external worries. Thanks to 24X7 media, anything happening even in a remote part of the world gets covered and analysed instantly. There are a lot of positives of a connected world, but a negative is that all concerns get magnified in the very short run. This is not to say that one should not follow global developments, but do not react without analysing its impact. The initial reaction is usually amplified and proves to be an incorrect one in the long run. Also, India being a largely domestic demand-driven economy gets much less impacted by the global economic developments.
4. Deviating from asset allocations
This is more of a general rule, but nevertheless holds good for 2019 as well. Stick to your asset allocation and change it only if some milestone is achieved or some other personal development happens.
5. Saving on advisory fees while ignoring the quality of advise
While SEBI’s efforts to rein in costs of mutual fund investments is indeed laudable; however, the flip side is the extreme attention and focus being given currently on only saving costs of investing and not on improving the quality, suitability and stability of investments. One must remember that good advise will never come without a cost and good guidance is indeed very important for successful investments in the financial markets. Hence cost of the advise should be one of the last criteria and importance should be given to quality and consistency of advise. The track record and accessibility of the advisor should be the top reasons for deciding your guide in the complex world of financial markets.
(By Ashish Kapur, CEO, Invest Shoppe India Ltd)