Risk of 2020 is YOU!
You thought that if a person has a net-worth of Rs. 30 – Rs. 60 crores a person will have some handle on his emotions! Well this man bailed out of his Rs. 30 crore portfolio – including debt and equity BECAUSE “SOMETHING happened in Franklin Templeon”.
Another family with Rs. 10 crores in mutual fund withdrew the whole amount. This is because they felt a return of 3.4% was not worthwhile the “risk”. They did the review a few days earlier.
A trustee removed Rs. 2.5 crores of the Trust’s funds because he felt that if Rs. 1 crore could become Rs. 88L, it could also become Rs. 12L (his words, not mine).
Well 2020 was not an easy year for investors. The New Year started with panic in the Oil market, and prices were soft. Russia, Saudi Arabia tussle and a general slow down kept the oil prices down. That was enough for us to worry about. By end of Jan the dreaded “C” word did not meant Cancer it meant “Corona”.
The other things to worry about? US-China tensions, China’s muscle flexing with Hongkong, Vietnam, India,…they have sent a message that they do not care a damn. Donald Trump makes noises like an ally in one place and as a “third party” when he says he will “help mediate” with China. Friends can’t mediate I presume?
So Internationally there is enough and more to worry about. Rather enough geopolitical risks as they say. In this scenario consider “should I buy Tata Motors” – a question which has been IMPOSSIBLE to answer for the past few years.
My worry is the top 3 examples – these normally smart people (you can’t be dumb and have Rs. 8 crores in mutual funds alone, can you) trying to time the market. All of them are convinced that this is not the time to be in the market. The money is sought to be invested for 5 years in bank FD. This is serious. It is not kept in a liquid fund wanting to come back. Are they timing the market? My answer is YES. Partially, that is. By trying to time the market, these investors are potentially making investment decisions that are based on emotions, and that are colored by their own individual biases and blind spots. Worse, the trust which is selling the investments may not even be needing the money at this point in time. Then one question to ask is “are the trustees acting on behalf of the Trust or are they harming the interest of the trust”. If I were a fellow trustee (or even an auditor) I would question the Trustees acting “in good faith”. This maybe good faith, but below ones competence. It would be interesting to see the Minutes of the investment committee made in 2016 at the time of investing.
Timing the market always looks alluring. There are enough IDIOTS who put up videos on YouTube saying how you can make crores by timing the market – currency, equity, oil, etc. Who would not want to be the person, or hire the financial professional, or do a course on Technical Analysis. This is supposed to help you to know the exact moment when to get in and out of an investment! It’s worth considering how the past two years, along with the past two decades, make a great argument for why trying to time the market is just not worth it. However, it is a great way to make money. Imagine having a class full of fresh IDIOTS slated to lose money. All you need is a software which will ensure that you take the opposite position! yes it is that simple to make money.
My book on Goal based investing still sells…after all that is the tougher route to wealth, not the quicker route to riches!!
However, for you to make (create) wealth, YOU need to read it, understand it, invest, remain calm, and ensure that unlike the top 3 cases, YOU do not panic.
Mostly, in investing, the risk is YOU. True in 2020 also. Nothing changes.
SS
If we have a fool-proof, fail-safe method to value the stocks, with a perpetual and lucrative yield, the best thing to do is to purchase the stock at that price with margin-of-safety and hold on to it forever. But, the problem is all the words in this sentence are variables of time. Apr-May-June results will tell how many businesses are under-water, bounce-back, shut-shop etc.
If a fresh investor invests 100 Rs, and there is a further decline of 30%, investment first becomes 70. A return of 12% every year for 10 years on 70, takes this amount to 217. On 100, that is return of about 8% which is not bad, (given the bank FD= 5%-ish now-a-days). I think what people look for is, whether it is possible to get 100*(1.12^10) = 310 through timing? There is a big difference between 217 and 310. Avoiding the “sequence risk” of returns and timing the shot, no doubt. It is one school of thought. Others think it is all-the-way up from now on, and they are set to get 310. That is other school of thought. No one is idiot, it is an individual call and how things will actually pan out. In retrospect, one of them will look dumb. But, that cannot be foretold upfront, otherwise why would they want to look dumb..
saumya
Timing is perfectly ok in Indian markets. when FII’s are short selling at 60,000 Cr and DII’s are just awe stuck!!… we as retail investors shouldn’t invest ANYTHING until FII’s come back.. this should be taught to all the retail investors as they are less informed….
In Indian capital markets, the DII’s are just dumb folks who ogle at FII’s and do nothing to keep the markets going.. they make money irrespective of markets going up or going down but retail people only make money while the markets go up … so no doubt they tread with caution… double wary