TEN key points from the note of Mr. Prashant Jain, Executive Director & Chief Investment Officer of HDFC Mutual Fund as of May 24, 2012. In bracket are my views.
1. Good returns are seldom made on investments made in good times.Rather, good returns are typically made on investments made in adverse times.
(So start your investment in Mutual Fund today. Don't wait when the business news channels shouts that market has jumped to 21,000 index.)
2. Sensex has yielded nearly 15% p.a. returns from inception in 1979 till date.
(Don't worry about assured returns not given by Mutual Fund. First assure yourself to stay invested for atleast 10 years)
3. Buy low and sell high is what everyone suggests and that is what everyone would like to do.The reality however for a typical investor in equity markets / equity mutual funds is somewhat like this – buy high, buy more higher, buy even more even higher, buy less when market falls, buy lesser if markets fall more and buy nothing when markets are
really down.
(Indian investors always abide by the TIPS given by their friends and not my the Investment Experts. Follow the above rule to have peace of mind in mutual fund investment)
4. Majority of investors mistiming the markets repeatedly and consistently is a key reason for the unsatisfactory experience of the majority from equities and for the poor equities ownership in India.
(Don't blame your Financial Advisor for poor returns. Blame yourself if you have not taken advice and not paid fees for the right advice.)
5. A majority of investments in equities are not done with a long term view, despite the fact that the best that equities have to offer is only over long periods.
(Investor promise to stay invested for long term but gets panic attack by short term volatility.Check your risk profile before investing.)
6. Einstein once remarked “Compound interest is the eighth wonder of the world”. At 15% CAGR, 1 becomes nearly
- 2 in 5 years
- 5 in 11 years
- 10 in 17 years
- 20 in 22 years
(No one believes Einstein. But why not try it.)
7. In rising markets the perceived risk is low whereas the actual risk is higher as valuations are high. On the other hand, in adverse times, when the markets
are not doing well and the news flow is not good, the perceived risk is high whereas the actual risk is lower as valuations are attractive.
(Everything ulta pulta. Investors do the opposite and get stuck. When your favourite New Channel shouts Invest Now!!! Invest Now!!! That means there is high risk.)
8. A majority of investors simply chase returns and tend to invest increasing amounts as prices continue to rise on one hand and tend to reduce investments when the prices fall or do not rise for long periods on the other. Such an approach to investments is clearly not returns friendly and it therefore comes as no surprise that a majority of investors probably do not get rich by investing.
(Most of the investors in Mutual Fund lose money as they simply chase returns and not their goals. Invest with a goal.)
9. Stock markets and God do not have much in common.Original couplet by Saint Kabir says:
Dukh Mein Sumiran Sab Kare, Sukh Mein Kare Na Koye
Jo Sukh Mein Sumiran Kare, Toh Dukh Kahe Ko Hoye
It means:
[ In anguish everyone prays to Him, in joy does none
To One who prays in happiness, how sorrow can come ]
An adapted version of the above for stock markets would be as follows:
[ In good times everyone invests, in adverse times does none
To the wise one who invests in bad times, wealth should come ]
(The moral of this is that remember God in good times and equities in bad times. If this is done, then chances are one will avoid both - bad times in life and poor returns on
investments.)
10. Times such as present, when the markets are not doing well should actually be looked upon as a window of opportunity for savers to invest more into equities, so that whenthe good times come, there are meaningful investments in equities to reap the benefits from...In a lifespan of investing of say 30-40 years, it is unlikely that the markets will provide many such windows. In the last 20 years there have been only 3-4 such windows.
(Its tomorrow that matters. Pessimism is all that one sees all around)
Pray to God to make you wise one who invests in bad times and make you wealthy.