Equity investors should let experts manage their money and stay for the long haul
I have been often asked this in various forms, “How do I make money from the equity market?” And my answer, in varying lengths, is the same: “By letting experts manage your money, by seeing equities as a thing for buying a piece (share) of business, and by staying with it for long.” Somehow, for some reason or the other, we don’t seem to bring in our experience and insight into equity investment, which we otherwise practice so indifferently in our daily lives. To give you an example, let me illustrate our train travelling habits and contrast this with our investing habits.
If and when we travel by train, especially if we are travelling long distances with our family, our usual modus operandi is: we fix our destination, we fix our travel dates, we check the train and the timetables, we pre-book the tickets, we plan the to and fro from home and station, and we also plan the routine a day before travel.
Contrast this with our equity investment. Most of us don’t know why we are investing, by when do we want that investment back, what is the investment schedule, what is the medium through which to take that investment, and how to structure our payments around it.
Most of us plan in detail for a two-three week long travel. However, we don’t plan our investments for our post-retirement journey.
We must have:
• A plan for our investments
• An investment process
• An investment objective
Our investment objectives must correspond with the objective of the equity fund we want to invest in.
Many of us are willing to pay a premium to the travel agent to arrange these travels for us. On the other hand, many of us would be hard-pressed if we were to give even a nominal fee for good investment advice to the financial advisor. And the contrast doesn’t end here.
Were our train to get delayed, travel slow due to bad weather, or stop in middle of nowhere due to a red signal, we do not shrug and leave the train. We check and enquire but we wait for we know that the train will finally take us to our destination. But it’s not the same with equity. If the market has run-up too fast, we want to book profits. If the market has declined, we want to stop our SIPs and investment plans. If the market is not moving anywhere, we want to switch funds.
We must know and appreciate that equity is a long-term performer, so these short-term red signals and pull backs are in fact buying times and not the time to exit and run. But we exactly do that with no regard for the long-term goal of reaching our financial destination.
There is another variant. If we dislike train halts, stoppages, stations, different quality of trains and a one-off accident, we do not completely abandon travelling by trains. We know that trains are far safer and more reliable than most other means of commuting for long journeys.
However, we do not extend the same courtesy to equities. Equity volatility completely dissuades many investors who choose a slow moving vehicle of fixed income investment. This, while knowing fully well that equities will outpace and outperform fixed income investment in the long run.
So I will conclude with the same assertion: let experts manage your money, see equities as a thing for buying a piece (share) of business and stay with it for long.
Nilesh Shah is MD, Kotak Mahindra Asset Management Company Ltd