Skip to main content

Financial Planning: Magic of investing - Patience & Strategy

There’s no secret or magic to investing. Ignore the fads, and keep your eye firmly on your goals


IF YOU dig in the same spot long enough, you’ll eventually find water, goes an old saying. But a lot of people dig in one place for a while, and then get impatient or distracted and start digging in another place, and then another... When they don’t find water in any of those, they blame their luck. It’s surprising that more people haven’t figured out the simple trick. Of course, there’s no denying the importance of choosing the best place to dig in the first place!


In my line of work, I often encounter people who seem to dart in a new direction randomly. Many get caught up in the latest investing fads. There are broad trends like equity and mutual fund investing. Then, real estate, commodities, gold. And then there are micro-trends—read “fads”—like going overboard on midcaps, banking stocks, the communications sector, and infrastructure. In pursuit of the latest trend, investors churn their portfolio. These are the people you find glued to the TV, watching business channels, where post-mortems and predictions are doled out incessantly to viewers who wait with bated breath for the latest, as if they could get the news and act on it before anyone else. But what’s on the TV channels is news only to the retail investor; the rest of the investing world usually not only knows about it, but has often also acted on it. The result is that retail investors are often the last to rush in last, and get the empty shell, after the kernel has already been eaten by those higher up in the investing food chain.


The investing topography also has its share of whirlpools and quicksand. These feature things like rumors floated by vested interests, and often aimed at retail investors. Trusting investors follow the trail laid out for them. Then the cowboys who floated the rumours unwind their positions and move on to the next pasture, leaving trapped investors bleating plaintively. But memory is short. Investors lick their wounds for a while, and then fall in line behind another pied piper.


Retail investors are fascinated by day trading. Who hasn’t heard a story about someone’s neighbor or cousin who makes money hand over fist on a daily basis? Isn’t it remarkable that one hardly ever hears stories about the losses made by these legends? Many investors have great faith that there exist failproof methods to become really rich really quick. They underestimate the risks they take, and rely too heavily on the instincts of themselves and of others, often at the expense of plain logic. The tide of optimism exposes their gambling streak, and they end up making bets that may not be as sound as they first appeared. Fact is, it’s very difficult to predict equity markets, because there are simply too many variables involved.


For those who want to get rich fast, investing time frames are measured in days rather than years. All that talk about wealth creation over time—how boring! What could be more tame than returns of 12-15% a year? The hot-blooded investor will settle for nothing less than doubling his money in six months. But the fact is that risk and return normally have a direct correlation: the higher the risk, the higher the returns. However, the chances of good returns increase—while risk does not—when one gives one’s investment time to perform.


When investors burn their fingers, they leap to the conclusion that investing is dangerous, and swear they will never return to it...until the next fad comes along—perhaps land, or gold, or something else. I’m not suggesting these are bad investments. My point is that it’s just drifting from one investment, to another, to another, without any strategy, will not help anyone reach their long-term goals. It amounts to digging in too many places for water.


If there’s no strategy for achieving goals, it may never happen. Most of us simply chase money. But that money is required for achieving certain milestones, fulfilling aspirations and meeting goals. Making money is fine—who could argue against that! But just chasing money, and letting oneself be led in any direction that seems appropriate at a given moment, will render the whole exercise futile.


Investors need to work with goals in mind, and work towards reaching them in the appropriate time frame, which is what financial planning is all about. There is no compelling reason to arbitrarily gun for some high-threshold of return (say 40% a year) which will only drive the investors towards riskier options. Responsible investments made over a period help in achieving goals, even if they give modest returns. Investors need to give them time. Like everything else in life, it takes time for an investment to bear fruit.


Less is more. There’s no need to keep moving one’s money around. If you have invested in good options in a diversified manner, just let it be. That way you can keep your sanity, and not have to constantly look around for options to shift to. This approach is good for your peace of mind and your blood pressure.


Remember, if something seems too good to be true, it probably is. Schemes which promise stratospheric returns deserve your skepticism. So do those who claim to be sure about which way the stock market will turn, which stock will do well this year, and the like. When someone is that sure, take their views with a proportionately big pinch of salt.


As for knowing where to dig for water, well, you’d consult a hydrologist, engineer, or some other professional, wouldn’t you? Why should it be different with money? Find a consultant you can trust, who will guide you responsibly.

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now