The opportunities in alternative options weigh on the investor’s mind. And this active mind likes activity. Should I revisit the options available? Should I act contrarian? Am I missing out on the current in-thing?
Many times, an investor tries to figure out between a fad and a trend. A fad is like a short-term phenomenon—a wave, which can quickly disappear. A trend is a tide, not visible at first, but a long-term phenomenon. It’s very important for an investor in his investment journey to distinguish hype. And this is precisely the reason why an investor’s returns and an investment return are never the same.
The investment does not know the market. It continues to invest and stay put. The investor at all times is in the market and is part of the cacophony—the noise. He always has this fear of missing out. And then accordingly acts, many of the times at his own peril.
If you have invested in equity and if you have been keeping track of the paint sector, you know that one of the key cost elements is the price of crude. The crude prices can never be predicted over multiple time frames. And yet a particular company in this sector has continued to deliver a double-digit return to its investors, not to forget the dividends.
As an investor, if you had exited the stock when the crude prices were going north, thinking that you will enter when the price corrects more, most often, the timing of entry becomes difficult. And then the prices again go high and you never enter again. And this is true with many of the investors.
What is important is to look at the same investment process in a different manner
Will the company and its product be relevant in the next 3/5/7/10 year?
Is the market share relevant?
Is the company a market leader?
Is the governance structure in place in the company?
What has the sales growth v/s industry growth?
With these basic information in place, one can take action on the approach now towards the particular company—buy/ hold / sell. Again, these are not an exhaustive list, but an elementary checklist.
Consolidate your holding
Many of us in this investing journey have also committed the same mistakes— not distinguishing a fad from a trend. Learning from the mistakes and moving forward and not repeating the mistakes is the key.
A trend many times is not identified as it gains strength, but as and when it gains and you have identified it, you should have the conviction to go ahead with the same and take action. Today, the options and avenues available are unlimited—equity, fixed income, real estate— and within all of this—option of fractional ownership and investing globally. As also investing in startups—everyone wants to be a part of this. So investing is not easy again! So, taking a long-term approach and consolidating one’s holding is not a bad approach.
The writer is managing partner, BellWether Associates