Want Goddess Of Wealth To Enter Your Home In Diwali And Stay There Forever?
Avoid these three investing blunders to make sure you win.
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Diwali is considered to be the greatest of all the festivals celebrated in India. As per the Ramayana it is about Shri Ram entering Ayodhya after 14 years. It is an interesting story with lessons at different levels. It symbolizes the victory of good over evil – more importantly it is about the journey to achieve the perfection within.
Stop chasing multi-baggers
As a prudent practise it is important not to chase multi-baggers? Question is why not?
In our experience, people who are looking for multi-baggers are looking at the quick money. Businesses grow over a period of time. It reminds one of the golden deer in Ramayana.
As per the tale Sitaji steps out of the line and hence is taken away by Ravana.
To put in an investing context if one sticks to a particular investing policy one needs to have good reasons to go beyond the line. When greed overcomes the discipline undesirable financial consequences can happen.
One of our clients is disciplined about his investment policy. Only time he changes is when sufficient data and likelihood of trend over the medium term seems realistic.
One of our clients always tries to look at the next multi-bagger. When being asked why is he so obsessed about it and whether the pursuit of this Holy Grail helps?
It is more of a situation of being a creature of habit. This practice has not helped him the way it wishes it would have is a rare admission which comes out.
However, the markets are supreme regardless of one’s way of thinking. One needs to understand the message the market is giving. If the rationale does not exist, then it is time to change the strategy. This is applicable to all asset classes regardless of category.
The right question is “Is this a good management with a real track record in a good business?
How does one define a good business?
A business with entry barriers
A top of the mind consumer connect
How does one define good management?
Ability to run it with integrity and still exceed the numbers.
Conservative capital allocators as all businesses have cycles
Have a good grasp of digital and the impact on their business
Are willing to disrupt the sector and are likely to gain if disruption happens
Don't try to time the market
When people try to time the market 90 per cent of the time they do not succeed. Why is it so?
Because there are multiple variables which one has not factored in dispassionately. Most people don’t have a system to execute a view dispassionately.
Can one do it?
One cannot do it most of the time unless professionally trained. Even if professionally at best the short term downside can be captured. For the upside to happen fundamental factors being in place is important for the buildup.
In the current scenario, unless the credit uptake moves up from 8.74 per cent growth to 12 per cent the growth momentum will not be felt on the ground. The government is making a lot of efforts to trigger loan growth; one of them is Loan melas. This is being held across many eminent chambers of commerce like IMCCI-IMC Chamber of Commerce and Industry.
Once we experience a credit growth uptake, one will begin to look at growth across the slow-moving parts of the market provided the basic issues in the business are sorted and it is ready for growth.
A prudent practice in the current market scenario is Systematic Transfer Plans. It is basically a transfer from a liquid fund to equity.
In the current situation, midcap is likely to rise post the credit growth happening. As of now, it is near the 200-day moving average, once it crosses and stays above it for a couple of weeks we would see a reason to reallocate from large-cap/large and midcap over a period of time.
Over allocation to a category
Many people over-allocate to different areas. It is like the extra piece of mithai in Diwali. Many senior citizens parked their lifetime savings with cooperative banks, to their peril as has been the case with a prominent cooperative bank.
Unfortunately, these banks are not known exactly for the best in class lending facilities. Recent situations currently do highlight a fiasco which merits a deeper investigation by authorities’ concerned. However, this is more of post mortem analysis
Is there a way to prevent it?
The answer is yes. If you don’t get greedy for that 1 per cent more the problem would not have been yours. The core idea in investing is to know the risk. Co-incidentally the people who are good risk managers also deliver higher returns in our experience.
One could have parked in an RBI Bond which fetches 7.75 per cent currently or in a liquid/overnight fund.
If you have Saraswati i.e. emotional mastery of the knowledge at your hand Goddess Laxmi or financial prosperity follows you. May you master your inner journey and create wealth.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.