Over nine years we have been crusaders of sound value investing principles, of which long-term thinking is an integral constituent
31-Jul-2015 •Dhirendra Kumar
Few people know that two and a half decades ago, Value Research started not with mutual funds but with equity research. My first assignment was a set of analyses of the then hot new idea of public- sector disinvestment. The research was published in The Economic Times and at the time was the only source of such information and opinion in the country.
In the decades that followed, even though we became globally known as the go-to source for everything on Indian mutual funds, our equity research capabilities grew just as robust. This happened simply because that's the only way to do an outstanding job of understanding equity mutual funds.
Therefore, when Wealth Insight was launched in 2006, it was more like a wheel coming full circle than a new beginning. Of course, just like mutual funds, we have our own distinctive way of approaching equity investments. It's an unfortunate reality that on the Indian equity market, a vast majority of individual investors (and even some institutional ones) have an extremely short-term and momentum-driven approach to investments. In fact, we have a deeply set cultural belief that equity investments mean continuous, hyperactive trading.
This was brought home to me a few days ago when I received an email from an investor who wanted to invest a large amount of money that was lying in his bank account. He was actually apologetic that he didn't have time for trading every day. It sounded like he felt that that trading every day was the default way of making money in the equity market. Therefore, not being able to trade every day should be seen a serious handicap in making money in the market.
This is not a fringe view. Well, statistically it may be a fringe view because a majority of Indians seem to believe that the only ways to make money is fixed deposits, real estate and gold. However, out of people who have anything to do with equity markets, many believe that the way to make real money in the market is to trade every day, all day long.
But why do people who have no familiarity with equity markets arrive upon this conclusion? One possibility is the marketing machine of the investment industry. When someone who has a substantial amount of money suddenly decides to invest it, what happens next depends entirely on chance. How does our potential investor decide to start off? Does he ask a friend, neighbour or colleague? Does he start Googling? If he does, what exactly does he Google? Does he click on the search results or the ads?
Depending on what happens, our newbie investor could end up having a different idea of what to do, and indeed, of what investing is. However, in many ways the situation is primed for disaster. Unless they already know something that makes sense, a fresh customer is most likely to be snared by whichever type of product has the most aggressive sales process. Unfortunately, in personal finance, the most aggressive salespeople are found in the products where they are likely to get the biggest cut of your money.
But here, we believe in a calm and measured approach, of which a long-term approach is an integral part. Equity markets are a roller-coaster ride even at the best of times, and investors need to find stability within the chaos rather than make the chaos worse. This is not a hard thing to do if you follow our approach. Fundamentally guided investments, chosen keeping the principles of value investing in mind, and keeping your own financial goals, aspirations and limitations in mind - that's all it takes.