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The Optimistic Conservative

Being careful with equity investments is not the same as being a pessimist

I’m quite sure that often, the conservative approach to investing that Value Research takes must be looking pessimistic to investors. However, there’s a clear difference between being pessimistic about the future and being cautious in choosing investments, and I’d like our readers to understand that. Sometimes, it does become difficult to distinguish a conservative approach to investing from a pessimistic one. Whereas an aggressive investor always has his eyes on the gains that stocks can get him, conservative investors always temper their expectations with the risk of losses. Avoiding risk plays as big a role in their outlook as hunting for gains does.

Most of the time, this does look like a pessimistic view of the future. After all, the basic instinct of any stock investor is to earn more money, not to lose less. Within the universe of stock investors, there are those who are conservative and those who are aggressive. However, when compared to the general population, all stock investors are risk-takers.

Remember, those who are interested in making money out of equities are a tiny minority in India. No more than four or five per cent of Indians who have an investable surplus have invested in equity at all. The total number of active equity investors across the country may not be more than about 10 or 20 lakh, if that much. The rest of the population never looks beyond bank deposits, and the various government-backed savings schemes. Basically, well above 95 per cent of Indians want to know upfront how much they will make and want a guarantee not just of the principal but also of the returns.

It stands to reason then, that even conservative investors are actually quite adventurous, and I might be right in suspecting that many of them must be quite irritated by the relentlessly conservative approach that Value Research advocates. However, this has nothing to do with our view on the general trajectory of the Indian economy and the gains that equities can yield. I firmly believe that the next few decades will see tremendous growth in the Indian economy and will offer massive opportunities for investors to gain from this growth. Anyone who has any savings should have some exposure to equities, whether directly, through mutual funds, or even-hopefully-through NPS or EPF.

However, being optimistic about the future is a different thing from not being a careful investor. Just as one can’t ignore the gains that can be made in equities, one can’t ignore the losses that are possible with reckless investing. It is a distinct likelihood that even as the stock markets head higher over the long-term, the number of investors whose returns are negative or marginally positive may be more than those who make substantial gains.

You could be a beneficiary of the coming decades of growth, but equally, by investing carelessly, it is entirely possible to become a victim of optimism. There’s no shortage of investors who have invested in the wrong stocks, or in the right stocks at the wrong time and have been left poorer by it.

And that’s where Value Research and Wealth Insight come in. Our job is not to scare you into being a bystander, but to ensure that you can not only reap the rewards, but keep them safe and enjoy them for years. That’s the vision we have, not just for the new year, but the new decade as well, and that’s the vision we hope you will share with us.