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I open my economic times app and am flooded with daunting graphs in red showing how Sensex has fallen. There are articles and tweets all around about the fed increasing rates, Russia Ukraine war, crude oil prices at an all-time high, Covid cases increasing in certain parts of the world. Every morning investors are swamped with information on how the Dow closed and how the SGX Nifty is going to bleed that day. Ranges of Nifty on the downside and the upside are mentioned for investors to look out for. TV channels blare with news about predictions for the market and vague ideas are thrown around as to what to buy and at what prices. And a whole lot of noise and chaos is served with breakfast every morning!
This constant barrage of information not only exhausts an investor but also hinders good decision making. Investors often spend too much time timing their entries rather than choosing quality businesses. In the long run, the noise fades but the consequences of our decisions linger on for way longer. When confronted with noise, try to remind yourself of these:
1. “Behind every stock is a company. Find out what it’s doing.” – Peter Lynch
Own good businesses, that’s the golden rule to making money. Do not fall into the trap of defining businesses basis their valuations alone. Find what the company does, who are the people running the show and how much value in real terms have they created so far. A detailed SWOT will help you choose the better from the worse. However, it’s not that easy for a layman investor to deep dive into each business.
Better still, leave this to a professional fund manager. With his expertise, resources and access to information let him take those calls. Whether amid the chaos or after it, it is only genuinely good quality businesses that’ll create wealth. But do your due diligence before choosing these!
2. “Invest for the long-term.” – Lou Simpson
It’s a very simple rule. Buy quality businesses and stick with them for the long term. Cut the noise of news, trends, narratives and other theories that keep floating around. The people who made the most money are the ones who did not disturb their investments for the long term either by design or by accident (and mind you, a 1-year period is not long term, it is just for your tax calculations!). In order for you to experience the power of compounding, give your investments time. So, start early and hang in there.
Work with a professional who knows what he’s doing and who’s available when the noise become unbearable. Someone who can take you back to the basics and make you hold your ground, find them and sail through with them.
3. “I don’t look to jump over seven-foot bars; I look around for one-foot bars that I can step over.” — Warren Buffett
Don’t try to do too much too soon. Take smaller steps towards accumulating wealth. Be consistent with your approach, but keep investing at regular intervals. You don’t have to accumulate a big lumpsum to start investing. Start by investing a part of your earnings every month, define a process that works for you and stick to it. A 10,000 rupee SIP every month over a period of 15 years, compounded at a 12% gives you a corpus of 50 lacs. Keep the inflows coming and compound that for 5 more years, you have a 1cr portfolio!
Have a professional nudge you to take the right decisions at the right time. Let them show the opportunity cost of every small financial decision you make. It’s many small decisions that combine together to make a huge impact, make that a positive one!
4. “Wide diversification is only required when investors do not understand what they are doing.” — Warren Buffett
With the overwhelming number of options, like cryptos, REITs, AIFs, fractional ownership of properties, small case etc it becomes increasingly difficult for investors to choose the right assets. Investors often overdiversify in the name of mitigating risks. More often than not this leads to the profits in one being cancelled out by the losses in the other. Creating a well-managed portfolio with assets which have higher probability of delivering returns consistently over time is the key. Keep reviewing and realigning as and when it’s necessary.
A professional can help you decide what assets you need and what you do not. Just because there is a product in the market, you do not need to have them. Work with a professional who is able to cut the noise of the many spurious opportunities in the short term and is able to realign you to creating wealth in the long term.
5. “Based on my own personal experience, both as an investor in recent years and an expert witness in years past, rarely do more than three or four variables really count. Everything else is noise.” – Martin Whitman
There is no secret sauce when it comes to being successful at investing. It is a sum total of disciplined and patient investing, choosing quality businesses, being consistent with your practices and rigorous reviewing and monitoring that creates wealth in the long term.
Everything else is just noise!