WHEN YOU HAVE MONEY, INVEST. WHEN YOU NEED MONEY, REDEEM:

There is so much of confusion and discussion about whether markets would go higher or lower or stay flat from here. I don’t know the answer. But so many experts have different answers; each according to how he/she sees it.

No one can get the answer correct. On each occasion, someone may get it right. But it would be different person on different occasions. No one consistently gets it right. Some people who have claimed to have seen 2008 crisis, was saying the same thing for very many years and one year they got it correct. Even the dead clock shows time correctly twice a day. If you keep saying regularly markets would correct by 20%, one day you would be proved correct. Likewise, if you keep saying regularly market would rise by 20%, one day you would be proved correct.

Market is an extremely complex mechanism. So many things affect it in the short term and it is very difficult to guess which way it will go. In the long run, only earnings and its growth impact a stock price.

The solution is owning a diversified equity fund or a portfolio of high quality companies for long run. Owning a diversified equity fund is a more passive activity and one has to be relatively highly active in holding a portfolio of stocks.

Index has not been a great indicator of broader market movements in India. Index has given sub-optimal returns over last one decade whereas actively managed funds have delivered a better performance. As long as one avoids thematic and sectoral funds and invests in well diversified equity funds, there is no need to worry about timing.

Many of you are saving and investing for retirement. Retirement is usually spread over couple of decades. It is not a one time activity. Goals, which happens at a particular point of time, like daughter’s marriage need planning in advance in terms of withdrawal. Daughter’s higher education, which is usually spread over few years, also needs planning in advance for phased withdrawals.

Goals like retirement or building wealth which is spread over decades and even multiple generations needs no timing. It is better to be in equity over the accumulation phase. In distribution or retirement phase, one can have a mix of debt and equity. People who have built great wealth have done it through holding equities for decades without worrying about volatility. ‘Buy & Hold’ works well in the case of good diversified equity funds.

We always tend to extrapolate the present into future. In the beginning of 2016, when there was a bear market, experts were predicting further fall. But markets went up a lot post budget. Likewise when markets corrected during demonetisation, greater bear market and recession was predicted. But we’ve been in a bull market post demonetisation. Now everyone is predicting further heights. It may still rise or correct; we would only know in hindsight.

The markets are always volatile and would continue to be so. Every year, you can look forward to, may be two 10% corrections. One bear market (fall of above 20%) every few years is most likely to happen. This is how it has always been.

In a country like India, whose economy and corporates is expected to grow well over next one or two decades, stock market would also keep growing; but not without going through periodic cycles. If it takes 2 or 3 steps forward, you can definitely expect one step backward. It’s movement is going to be only like this. But every cycle would see new highs. But don’t look to time it. I cannot do it for you. Be skeptical about people who claim they can do it.

Once you invest in equity, simply stay the course.

But for few exceptions, the general rule is invest when you have money and redeem when you need money, ensuring at least there is a 10 year time period in between.

Best Wishes ! Happy Investing !

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