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Equity investments: Reap the benefits of a long innings

Patience, perseverance and quality stocks are needed to win the game of equity investments.

Mutual Funds Vs Direct Stocks, Equity mutual funds, asset class, savings, us markets, inflation
Equity mutual funds make one invest at low cost and ensure that the retail investor has to make the minimum number of decisions.

By Ravikant Rathore

A tale of another March, that of 2001; India having bowled out for 171 runs chasing the first innings score of 445 put up by the formidable Australian team. Having been asked to follow on, Team India batted for two days and went on to score 657. India went on to win the match creating history to become the only second team to win a Test match after being told to follow on.

To win a Test match you need patience, perseverance and quality which is basically what is needed to win the game of investments:

  • Patience to let investment compound over the long term.
  • Perseverance to continue investing in difficult times.
  • Quality focus in investment (Quality companies).

Test match and wealth creation

There are 31 triple centuries in Test matches. But how many triple centurions are there in one-day matches?
Yes, there have been 31 triple centuries in Test cricket and none in one-day cricket. One cannot deny that it may happen someday, but surely the probability of a triple century is more in Test matches than one -day. Similarly, we have heard about billionaire investors creating wealth over the long term but not one short-term trader making it to the list. Last year, Forbes released its 29th billionaire list identifying 1,826 billionaires which included names of Warren Buffet, Carl Icahn and others but one would go down the list searching for traders. Back home we have heard of people making huge money by staying invested over the long term, famous stories of people becoming millionaires by investing small amounts in companies and staying invested over the long term. At the same time, you would barely hear success stories of short-term traders.

Test match is about runs

While one-day match is about trying to score more runs in fewer balls, Test match is about scoring a huge run score for it to last 20 wickets of the opponent team. Similarly, in investments while short term investments may be about the rate of return generated, long-term investments is about creating huge wealth over the long term. While short-term investing is about returns. long-term investing is about amassing huge amount of money.

Short-term investing can be about generating 25% returns while long-term investing is about investing Rs 1 lakh and staying invested over the long term to see it becoming Rs 1 crore.

Batting average increases by remaining not out

In cricket, your batting average increases as the number of innings that you have remained not out increases. Similarly, your investment returns improve the longer you stay invested and do not quit your investments.

Recent market carnage and long-term investing

The recent equity market carnage has definitely made investors jittery. However, investors would do good by focusing on what is under their control and do what has stood the test of time. Looking back in the history, it has been seen that economies over time recover and the biggest beneficiaries of economic recovery has been equity investments. The graphic explains the impact of staying invested through the crisis.

Staying invested in equities and sailing through crises is one of the key traits of successful long-term equity investors. Equity market falls should be optimally used as investment opportunities in quality companies which have withstood recessions and equity market corrections.

The writer is deputy vice president, Products, Tata Mutual Fund

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