After a long gap, Iam writing to you from Arthabodhi’s desk. Hope you & your family are safe & healthy and Covid free.
Year 2020 had been turbulent from the aspects of physical and financial health. All the theory I was mentioning about market volatility turned into reality. All of us who had been investing into equity directly or via mutual funds since last three years have experienced this market volatility in our portfolios.
Let us look at this Prediction made on March 25, 2020:
Now Look at this Prediction from the same institution on November 16, 2020:
I am not blaming or shaming out any institution here. All that I am trying to convey is NO one can predict markets and estimate where it will go by end of the year. This is the nature of equity markets. However if we understand the value of time in equity investments, we will not be getting into rude shocks of market behaviour.
In early Covid days, markets crashed very rapidly and those who managed their emotions and stayed invested are seeing the better outcome wrt their portfolios. Those who have exited and ran away had no time to realise & re-enter the market as the recovery was at rapid speed. Now the question again haunts is “ Is it the peak? Is it right time to enter equity mutual funds?”
My answer always remains the same, If this equity investment is meant for a goal which is due after 10 years from now, this peak actually doesn’t matter. Investing consistently and regularly is the key to wealth creation.
The stock market will go up and down. Just Accept it. This is an uncertain world, and no one knows what will happen the next day but there are 2 fundamental truths:
- The Stock Markets will go up and down.
- For a developing country like India, over the long term, the stock market trajectory is upwards.
I personally feel, this next decade is one time life opportunity to create huge wealth if we have right investment approach and investment behaviour.
Just think about it, If the Sensex goes to 50000 or 55000, will we stop investing? If the market goes down to 30000, will it stay there for the next 5 years? The point is that we should not allow anyone to come between us and our investment strategy. The only way for investors to make money in the stock markets / mutual funds is by investing in a diversified portfolio (to manage risk) and then staying invested through all times (not to mention investing more if you have surplus during crashes). The real secret of the wealth creators is TIME.
Nassim Nicholas Taleb’s quote should keep ringing the bells in your head “Minimum exposure to the media should be a guiding principle for someone involved in decision making under uncertainty – including all participants in the financial markets”.