Smart Investing: Look at the long term for good returns

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Published: May 6, 2019 1:56:21 AM

Investors wonder whether it was a correct decision to invest in equities.

 Smart Investing, term for good returns, good returns, market analysis, equity, investment, newsSmart Investing: Look at the long term for good returns

For the last 18 months, the Indian equity market has been on a roller-coaster ride. Returns in equity investments have turned from double digit to being in red, and now in certain cases, to a low single-digit. Investors wonder whether it was a correct decision to invest in equities. But the question is: Is 18 months a long enough time to check the investment returns?

Analysing markets
Let’s start from the beginning. The period is mid 2017. The BSE Sensex and Nifty 50 along with a range of small cap and midcap stocks, especially the later were going up north. An investor, waiting in the sidelines, keeps his corpus in the savings account and liquid funds, expecting the market to correct . But then the market acts on its own basis and does not listen to you.

At the end of 2017, the Sensex reported returns of over 25%. However, the investor got nothing as he remained on the sidelines. Then in 2018, as fear of missing out (FOMO) creeped in, he invested in January 2018. And the market was up by more than 5% in that month. However, in February and March, the markets fell and wiped out all the gains made in one month.

Equity is volatile
It is a fact that equity investment is always volatile. Past data show that in 2011, the Sensex returns were down by about 25% and in 2008, it went down by 50%. In 2017, the Sensex went up by 30%.

Over the past four decades, the BSE Sensex has delivered a CAGR return of over 15% (point-to-point). So as an investor, how will you get the process right? Investing is a simple process. Identify the good stocks or a good mutual fund scheme managed by an experienced find manager and start investing. Well, this is the execution part. The important part is to know oneself. Ask yourself how will you react when the portfolio goes up ? And also, when it goes down? And again, when it is in red, will you stop the investments, or redeem the investments or stay put ? These are only a few elementary questions.

Looking long-term
And the answer to these can be simple and/or difficult, based on how honest and truthful you are in answering the questions. One of the important but most ignored process is investing the short-term funds into volatile instruments in the search for higher return. Do accept and understand, when you need the money in the next three, six or nine months or even two years later,it’s not worth the risk. You will be proven right in your calls, but that could be pure luck. What one needs is a process and method to make the money work for you at all times.

The biggest enemy of an investor in his investing journey is he himself. As an investor, one need not react to the events and take kneejerk actions. Having a process and asset allocation in place will enable an investor to earn higher returns in the long run.

The writer is managing partner,
BellWether Advisors LLP

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