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Facts change, principles don't

Sticking to the basics is a time-tested formula for investment success

Facts change, principles don't

A few months after the Chinese virus had started on its trail of death and destruction around the world, I wrote the following in my regular column in 'The Economic Times': Some of my readers say that ever since the Covid crisis started, I've been guilty of repeating the mantra 'stick to the basics' too often. They are completely wrong. I have actually been repeating this mantra for the last twenty-five years; Covid has nothing to do with it! I hope to keep repeating it for decades to come.

Let's re-affirm something that is fundamental to Value Research and indeed to all investing: facts change, principles do not. Back in September 2002, when I and my (then tiny) team were struggling to bring the first issue of 'Mutual Fund Insight' into this world, the facts and information regarding Indian mutual funds were very different. Just as an example, the list of fund companies had 31 names in that era, while there are 42 today. Not just that, 10 of the names that were there are no longer there. A whole generation of mutual fund investors today would not recognise names like Zurich, Kothari-Pioneer and Alliance Capital, which were big guns in 2002.

This is just one example. The way one interacts with mutual funds has changed shape completely, with all stages of the investment and redemption being possible through digital/internet means. The way you interact with Value Research Online too has also undergone a revolution. In those days, you had to enter each of your transactions manually to track your portfolio. Today, you can just go to Value Research Online, and with a few clicks, import your portfolio from CAMS or KFin Tech and get the most in-depth analysis within a few minutes. For a mutual fund investor from 2002, this would seem like science fiction.

However, as I said, facts change but principles stay the same. What investors should do, how they should plan their financial lives and how they should make their choices, are still the same. Goal-based planning, diversification, appropriate asset allocation - these are still the cornerstones of being successful in meeting one's financial goals.

Just as importantly - and this part gets ignored often - the list of things that you should not do is still the same. This is the part that people tend to gloss over because no one likes to talk of negative things. Even though it's equally important, investors don't like to read about how not to lose money. They're inherently optimists. You are not reading this magazine in order to avoid losing money - you are reading it because you want to make more money and because you believe that it's possible to do that.

This is a problem and for many investors, it may actually be the biggest hidden problem in their investing plan. Mistakes (bad decisions) can cause far more damage to your investment value, and do so far more quickly than can be countered by great investments. Somehow, I feel that along with the convenience and speed of digitalisation, the velocity and the volume of making bad investment choices have gone up. Recently, we had a new fund offer that collected over Rs 14,000 crore. Given that NFOs are always a bad investing decision, this is a flabbergasting number. The digital transformation of investing is much faster and much more convenient, but is it better? In investing, 'better' is easy to define. Do digital investors have higher returns compared to the non-digital ones? Do they end up with higher savings? Do they face less risk? Do they face less volatility? Do they undergo less stress? The answers are clear. Sharper tools can be better in the hands of an expert but can also be dangerous.

Most of the time, investing mistakes don't happen in a vacuum - a high-pressure sales-driven financial services industry is luring you into mistakes. Staying focused on the basics, the principles that never change, that's an integral part of any successful investment plan.

This editorial appeared in Mutual Fund Insight November 2021 issue. To read the cover story and other insightful analyses, columns and articles

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