Converting a fall into a loss

History has shown that retail investors more often buy high sell low whether it be equity or F&O. Some lessons are never learned. Why is it that retail investors—often called backbone of the stock market buy high & sell low thus eroding their capital in the process?

Despite knowing about rule of compounding—they seldom follow it. What does the rule of compounding say? 

The first rule of compounding is: - never permanently put your capital at risk, and if you avoid a permanent loss, time and reasonable return expectations will do the work. The key word here is “permanent” It is the difference between a fall and loss. My most fervently held belief in investing, built on decades of firsthand experience, is that the market itself never permanently takes money from diversified long-term investors. Every fall, even if it felt like the end of the world at the time, has reversed. Not just that, it has reversed a lot more quickly than it appeared possible during the fall. Permanent losses, those that never get paid back, are always manufactured by the investor’s own actions. And they are always manufactured by panic, not by the losses.

If the market falls 10 per cent this month, and the number on your portfolio valuation sheet is red and has a minus in front of it, you haven’t lost anything in any meaningful sense. That number will become the reality, and you will convert the fall into a loss only if you decide to do something about it

In my experience with investor behavior, this conversion of a fall into a loss happens for only two reasons. One, you have no conviction in your investments: you have no idea what they are actually worth, and why you bought them, so you panic and sell. Two, you borrowed and overcommitted during the green phase, so when the red phase arrives, you have no choice but to sell at the worst possible time. In either case, the losses were not created by the market but by your response

I have never come across someone whose whole portfolio became trash because they failed to react in time. The ruin was always caused by the opposite behavior: people sold everything in March 2008 or April 2020, then held cash while the recovery came and went, and they made it permanent with their own actions.

During a serious market fall, the most valuable thing you can do is nothing, and the second most valuable thing is to carry on with your regular investments because, one day soon, you will be thankful for buying the shares and units when they were really, really cheap. To be able to do so, you will have to have belief in your/or your advisor’s convictions, in why you invested, but that’s another story

 

 

 

 Headlines in newspapers---

1.  ‘US strikes Iran’
2. Sensex plunges over 1,000 points.
3. Crude oil prices jump over 8 per cent’.
4. Crude prices can touch $200

Naturally market reacted with a sharp decline. However, the knee jerk reaction may not be correct. Market factors uncertainty and when uncertainty rises, stock prices go down.

A geo-political crisis like the current one may initially signal end of the world and businesses. However, this is not the truth, but far from truth.

History has shown that big fall do happen in short term but the recovery is also quick.

The table below lists the past geo- political events and how the market has responded,

 

Date	Event	Peak fall that month (%)	1-year Return (%)
20 March 2003	US-Iraq war	(-) 8%	60
13 September 2008	Delhi Blasts	(-) 15	18
26 November 2008	Mumbai Attacks	(-) 19	82
20 February 2014	Russia-Ukraine war	(-) 2	45
28 September 2016	URI Surgical strike	(- ) 4	12
26 February 2019	Balakot Air Strike	(-) 4	10
5 May2020	Galwan Incident	(-) 5	58
24 February 2022	Russia Ukraine War	(-) 9	7

The above table shows that while the period immediately following the geo-political event is volatile, over next 1 year or so market smartly recovers & posts strong gains. Markets tend to price fear quickly while long term returns are driven by broader economic forces.

The final word: -

Geopolitical crises are inherently unpredictable and can send shockwaves through markets in the short term. Prices often react quickly as investors grapple with uncertainty. Yet history shows that these declines are frequently temporary, with markets tending to recover and revert to their longer-term trends.

To cut the long story short—lage raho with your investments. Ache din aayenge.

 

 

 

 

 

 

 

 

                  

 

         

 

 

 

 

 

 

 

 

 

 

SIP Dilemma---pause or continue

 The phones begin ringing (as they always do) when markets become nervous.  The only answer sought by investors is

·        Should I pause my SIPs?  Or

·        Should I redeem and shift to cash and again reinvest when market stabilizes.

Market will find one or the other reason to justify the fall.

This time its tariff. The first casualty of a nervous market is SIP.  The anxiety over tariffs issue has knocked off approx. 4000 points from Sensex

The whole logic of SIP investment is that since you cannot predict market movements so you spread your purchases across time so you average out your cost of purchase. So, when you suspend your sip during down turns, you’re negating the very logic of SIP which is meant to turn volatility into opportunity.

SIP investment is meant to get over behavioral tendency of avoiding loss in investments—even if for short term. SIP works because it aligns with your periodical cash flows (monthly sip for monthly cash inflows). You are not expected to stop your sip once you begin.

SIP fails to generate wealth for most investors when they stop their SIP and do not resume them at the right time. Investors usually wait for clarity, market to stabilize which effectively means waiting until NAV has recovered and window of acquiring units at a lower level has closed. But the irony here is that while the investors stop/pause their SIP, they continue making financial commitments in ULIPs; stock market etc

The solution isn't to ignore market conditions entirely – it's to understand that SIPs are specifically designed to work through them. If you genuinely believe in your chosen fund's long-term prospects and your investment horizon remains unchanged, temporary market corrections/weakness should be irrelevant to your monthly contribution schedule. If anything, it should reinforce your commitment to the process.

The next time market headlines make you question your SIP commitments, remember that these moments of doubt are exactly when systematic investing proves most valuable. The discipline to continue contributing when others are pausing often separates successful long-term investors from those who merely hope for success

A word for long term investor—It’s not your thinking that makes big money, it’s sitting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Why timing the market is not good

Why should you not time the market

 Investment success or failure is entirely about the investor's psychology. We might say that so and so did badly because of wrong asset choices, mistiming the market or a bad economy, but those are just proximal causes, the symptoms. Investment success or failure is entirely about the investor's psychology. The root cause is always the investor's own mindset, knowledge and attitude. 

In fact, it's genuinely fascinating how human beings can simultaneously know something to be true and yet act as if they don't believe it at all.

Compounding is one of those rare things in life that delivers precisely what it promises. It's not a marketing gimmick or a clever sales pitch - it's simply mathematics at work. The arithmetic of money growing upon itself is as reliable as gravity, yet our behavior suggests a strange skepticism about its power.

When we invest, we don't see dramatic results in the first few years.  This delayed gratification is particularly challenging in today's world, where we've grown accustomed to immediate result

A monthly investment of Rs 10,000 takes almost a decade before the returns begin to overshadow the invested amount. This is precisely where most investors lose patience. They see the modest gains in the early years and conclude that the game isn't worth playing

What makes this more interesting is how we overestimate what we can achieve in the short term whilst underestimating what's possible in the long term.

Perhaps the solution lies not in more education - we already know these truths - but in developing a deeper belief in processes that take time. It's about cultivating the patience to allow compounding

Let me build a case for how rewarding can a long term be in real term. I have selected 2 funds in two different investment strategies.

1.    DSP Small Cap Fund in which a monthly SIP of Rs. 2,000 was initiated on 15/06/2010 and continuing till date (a real-life example)

2.    Lump Sum investment of Rs. 1L in Nippon India Growth Fund (Growth) made during its public offer (NFO) in October 1995.

  

		FUND	INVESTOR
INCEPTION		14/06/2007	15/06/2010
Investment mode			Monthly SIP of Rs. 2000
SIP Start Date			15/06/2010
Investment (Cost)			Rs.5,86,594
Status of SIP			ACTIVE
Market Value			Rs. 22,56,195

 

Nippon India Growth Fund (Growth plan) (Growth Option)

Investment of Rs. 1L in the fund’s NFO (October 1995) is currently valued at Rs.33,40,950 (CAGR of 12.70%)

Consider this—

If you had invested Rs. 5,000/-every month in equities in last 10 years (3650 days) it would have grown to Rs.12.42 L today.

However, if you had missed 10 best performing days,(out of 3650 days) your corpus would have been worth Rs.8.23L

Further, if you had missed 20 best days, you would be left with Rs. 6.86L only

If missing 10/20 days out of 3650 days can impact your wealth so dramatically, then timing is not a good idea.

Remember, your patience and belief in the market can create some serious wealth. Mutual funds can be the 2^nd. earning member of your family when you stop earning.

 

 

 

 

 

New Years Resolution for MF Investors

 Have you ever wondered what would a new year resolution of an equity investor look like—if there is one?

There are not many things that an investor should resolve in a new year that can bring about a real difference to their MF investments

The first and perhaps one of the most important resolutions is not to own all funds falling within alphabets A to Z. Remember you are not a collector of MFs but an investor. Diversify across categories/genre of mutual funds rather than schemes. Know your funds like categories they belong to and also how have they fared relative not only to their benchmark but also compared to their peers!

The second resolution could involve regular evaluation. You don’t need to churn your holdings in response to every market movement or news headlines published in pink papers. It does more harm to your portfolio than good.

The last & perhaps the most important resolution is to embrace SIP. Inculcate a habit of accumulating MF units through high & lows of the stock market. One way to derive maximum potential of wealth creation through MF is to increase your SIP amount regularly (known as STEP UP SIP) with every increment in salary. Other way is to promise yourself that you will not stop your SIP when market falls. SIPs are a simple strategy which makes your money work harder than you do.

Remember, you don’t need smart strategies to make money and/or create wealth from MFs—it’s simple but boring acts like SIP that evolves into a 2^nd. Earning member of your family that works when you don’t.

We believe that the 3 strategies and as discussed above can go a long way to help you meet your life’s goals by putting right amount of money in your hand at the right point of time

Our best wishes to you

 

 

 

Infrastructure Sector Beckons

16/02/2024

Dear Esteemed AIMS Member,

I hope this message finds you well and prosperous.

In the dynamic landscape of investments, there's a beacon shining bright amidst the shifting tides of opportunity – infrastructure. At DSP India TIGER Fund, the management has meticulously crafted an investment strategy poised to harness the immense potential within this sector, ensuring substantial returns for our esteemed investors like yourself.

Why infrastructure, you may ask? Well, it's where the heartbeat of progress resonates. From the construction and development of green-field highways to the establishment of energy storage facilities, both domestically and internationally, the stage is set for exponential growth. Consider the advent of Vande Bharat trains and the expansive metro rail networks - these are just glimpses of the vast opportunities awaiting savvy investors.

Moreover, with global manufacturing giants like Apple and Suzuki pivoting towards India, the tide of industrial expansion is unmistakably in our favor. Not to mention, the imminent arrival of Tesla's manufacturing operations further solidifies India's standing as a premier destination for investment.

DSP India TIGER Fund, has been at the forefront of this transformative journey since 2004, consistently delivering remarkable performances that speaks volumes:

- Over the last 15 years, the Compound Annual Growth Rate (CAGR) stands at an impressive 15.76%, securing a commendable rank of 3 out of 15.

- In the past decade,  CAGR soared to 18.56%, earning it a solid rank of 6 out of 19.

- Looking at the last 5 years, its CAGR surged to an astounding 20.33%, maintaining a steadfast rank of 6 out of 20.

- And over the past 3 years, its CAGR skyrocketed to an exceptional 36.99%, securing a formidable rank of 7 out of 20.

But it's not just about numbers; it's about stability and resilience. While its standard deviation aligns closely with industry norms at 16.23, the beta stands at a reassuring 0.60. What does this mean for you? Simply put, for every 10% movement in the market, the fund's NAV moves by a steady 6%. And let's not forget the Alpha of 9.37, a testament to the value the expert fund managers bring to the table.

Now, as we usher in the era of "achhe din" (good times), there's never been a more opportune moment to join us on this journey of wealth creation in the infrastructure space.

So, seize the moment, seize the opportunity. Invest with DSP India TIGER Fund, and together, let's pave the way to prosperity.

Warm regards,

Vj_AIMS

What the market has taught us

 

 A financial guru has said: -

 “Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars”

 Attempts at timing the market can make investors worse off in the long run than riding out the inherent volatility.  This is simply because it’s hard to precisely forecast how the market will move in the future—unless your advisor is an astrologer who can see & predict the future.

A significant chunk of investor gains over a long period of time is actually the result of only a handful of highest-return days or as we call them, the best days. Miss a few of these and your long-term investment returns can take a big hit.

We looked at the Nifty 50 daily returns from the start, July 1990 till November 2019. Assuming that someone invested ₹10 lakhs in the market at the start of this period (30-years approx.) and stayed put all through, then he would end up with ₹4.30 crores today.

	Invested entire period	Missed 5 Best days	Missed 5 worst days
CAGR	13.70%	11.40%	16%
Value of Investment	4.30Cr	2.40 Cr	7.90Cr.

Since 2000, there have been only 8 years when the stock markets did not reach a new all-time high. More recently, from 2013 onwards, the stock markets have seen a new all-time high in each of the last 8 years except the year 2016.

Profit booking is a mirage

Profit booking is justified only if you can re-invest the booked profit at a higher rate of return, or if you are able to make your seed investment free of cost. Otherwise profit booking merely serves to meet your belief—even if is erroneous.

Profit booking involves reduction in unit holdings. So, when the bullish trends re-appear in the stock market; you make less gains as your unit holdings have reduced owing to profit booking. Let’s explain this by an example.

There are 2 investors holding say, DSP Small cap Fund.

                                                                                 

Mutual Funds are a great vehicle to create wealth over long period of time—and not a money-making platform as is normally perceived.  MF investments has the potential to create 2^nd. Earning member in your family who works for you when you don’t. It ensures you do not outlive your retirement corpus.

We at AIMS have always believed that a lazy portfolio strategy is the best strategy to derive maximum benefit from MFs. It has worked for our personal investments. It can do the same for you too.  Remember, it’s time in the market and not timing the market that creates wealth, as proved by Uncle Buffet

Rejig your MF investments TODAY so as to make the most of the “century belong to India” theme that is currently unfolding.