A lot of investors are increasing equity exposure in their portfolios and getting uncomfortable about it. This feeling is natural while starting a journey in unknown territory. But on the other hand, there are many investors who have multiplied their wealth over the last few decades using equity markets. Therefore is there a way to learn from the accumulated wisdom and experience of the veteran equity investors? Well, This is an attempt. This is intended for investors who have spent less than three years in the capital markets, however, for mature equity investors, it is perhaps a reinforcement of the rules that they use every day!
The asset called Equity
Equity as an asset class has generated consistent returns in the long term, a representative of the same is the index SENSEX, it has generated
a CAGR (compounded annual growth rate) of 16% since its inception, which was almost 4 decades ago! Consider this, 5 lac Rupees invested in that year (1979) would have today grown to over 14 Cr today!
Unbelievable?
But, this data cannot be questioned as it has recorded history. It can not even be rigged! It’s the SENSEX index. It has been an incredible asset class which has been generating consistent long-term returns, then why do the majority of investors say “The markets have surely done well but I mostly end up with lesser profits or losses”. Why?
Your Boss knows the answer
A small digression, Just imagine this, what would be the number of bosses you would have worked with till date? Do you have a best boss, where the frequency matched? Do you also have a worst boss who would be a good professional yet something was out of sync and you ended up having a terrible time?
Now coming back to the question, Investors and assets, at behavioural level form a relationship, whenever Investor’s personality is completely opposite to the asset’s personality (Risk-return parameters), voila, welcome to the uncomfortable zone, this generally results in the investor making much lesser money than what the asset delivers. For example doing a panic sell when markets stay low, instead of investing further or perhaps getting anxious on market high times, ending up booking profits too early thereby missing a big part of the rally.
The problem
Today, Indian Investors are facing a tough challenge. They have developed moneymaking abilities and skills through their investing experience of the last few decades in assets like gold, Real estate and fixed income (deposits). But, unfortunately for such investors, every morning they read or hear that the asset class of the next decade shall be Equity! Therefore, invariably these investors shall now invest in equities just like in life you don’t get to choose your boss.
