There are a lot of hoary old clichés about learning from mistakes. Starting roughly at the time when we enter school, we're subjected to preaching about how one should learn from one's mistakes or that one should learn from others' mistakes or even that one can't succeed without making mistakes and so on and so forth. We are always told that mistakes make excellent teachers. All this may be irritating but it's also true, at least in financial matters.
For the last few years, we've all gotten used to a situation where it felt as if that mistakes didn't matter. All types of investments were doing well, all kind of assets were rising in value and most people's real (non-investment) earnings were rising rapidly too. If you had money in a bottom-quartile mutual fund, you still made good returns. It just happened to be less than you would have made otherwise. If you had neglected to think of asset allocation and all your money was in risky mid-cap stocks and sector funds then that was OK too–you got better returns than any safe strategy would have got you. Even if you were committing the ultimate sin of borrowing to invest–perhaps in a piece of land–that was OK too because the money was cheap and the returns plentiful.
Unfortunately, those times are gone now and its time to focus on correcting mistakes. It's often said that to save wisely and invest well, one doesn't really have to do any big thing right. Instead, all that is needed is to avoid making mistakes. And so, as these bad times threaten to turn into worst ones, it may be a good idea for all of us to focus on the financial mistakes we've made.
There's a deeper mistake that has driven the investors' behaviour on the stock markets. And this nothing but the same old bogey, short-termism. A year ago, everyone was pouring money into stocks because they wanted to catch every bit of gains that could be had. As those gains turned into losses, investors ran away and pulled out as much money as possible out of stocks. Now, no matter what happens, they are not going to invest till…well, I don't know till when. On the surface, this seems like sensible behaviour. The markets have turned negative, so people have pulled out.
In reality, it's anything but. What we were doing a year ago was also short-termism, and what we are doing now is also short-termism. It is true that business prospects around the world appear to be bleak. However, it is also true that stocks already have a fair bit of bleakness priced into them. Sooner or later, things will turn around, and specific parts of the markets will turn around quicker than others. When this will start happening is clearly uncertain. However, the whole point of making money on the stock markets is to have a long-term view so that you can buy when everything is down in the dumps and available dirt cheap. I'm not saying that its time to rush back in, but continuing with regularly investing, whether its through a SIP plan or otherwise is the right approach. Those who have stopped investing in this mania are not doing the right thing.
If this is not the time to start doing that, then it will never be.