Since February 2020, the world is seeing a seemingly never-ending stream of crises. Here's a recipe for investors to move ahead with confidence.
18-Aug-2022 •Dhirendra Kumar
There are decades where nothing happens; and there are weeks when decades happen." That was said by Vladimir Ilyich Lenin, one of the founders of the USSR.
There's also an ancient Chinese curse, 'May you live in interesting times'.
Note that this is a curse, not a blessing. As we have all (re) discovered since March 2020, living in overly eventful times gets more than a little stressful. What makes it worse is that the stream of alarming events does not appear to be stopping. This year, as COVID has been winding down, we get the war in Europe; rampant global inflation, along with the attendant threat of higher interest rates; civil unrest created by economic disasters in dozens of countries, including our neighbourhood; and now the idiotic provocation of China by the US establishment over Taiwan.
Frankly, it's a somewhat scary time to be an investor. I guess it's a scary time to be anything but our brief is to talk about mutual fund investing alone, so I'll stick to that. March 2020 looks so far back in time; it really was a different world then in many ways. In the investment world, I have always said emphatically that people who say 'this time it's different' are often wrong and now I'm saying that the world is a different place! So, which is it?
The answer is simple, and the same as it has always been. The circumstances are different, but the principles are not. For things to be genuinely different, we would have to be in a situation where investing in bad companies would make more sense than good companies. It would have to be a situation where diversification would have stopped making sense. It would have to be a situation where always investing in a lump sum would make more sense than an SIP. I can assure you that kind of a time has not arrived, and nor will it ever arrive.
That still leaves you and me with the nervousness that comes from unprecedented events. Even as I write these words comes the news that China has fired its DF-15 short-range ballistic missiles towards the direction of Taiwan. These are part of military exercises but it's still something that has never happened before. We all know that some 70-80 per cent of the high-end computer chips are made in Taiwan by TSMC. What will happen if the Americans push China too far? It's not only worrying, but alarming.
However, that still does not cancel the basics of good sense for investors. No matter how nervous you are feeling about the way events are unfolding, the rules of investing do not change. So, what are your options at this point? Well, it depends on how carefully you have been investing, how well-chosen your mutual funds are and how well-suited they are to your financial goals and your temperament.
It's about confidence
Most importantly, it depends on whether you have confidence in all this. How will you get that confidence? We'll get to that in a bit. If all these things are already in place, then the best option is to do nothing! I know that doing nothing in the face of a severe stream of events is hard for investors to do. Some time ago, I saw this tweet from Nassim Nicholas Taleb where he was talking about vacations: Don't go to resorts where you meet "achievers" on commoditised vacation actively trying to relax. Instead, go to villages (preferably your village of origin) & interact with locals who can teach you how to do nothing when there is nothing to do. Doing nothing is an activity which is not normally associated with success in anything. In fact, it is associated with laziness and failure. That's probably true for most things in life, except investing. If there is nothing to do, then please do nothing!
This goes against the grain of what people will tell you. There are lots of things happening, so you must do a lot of things - that's the normal reaction. You need to have a lot of confidence to face this. Basically, at that point, you need to have enough confidence to look like a loser to other places. This happens time and again. Most recently, it happened when COVID began. Remember the initial stock crash in March? Remember how investors rushed to redeem their investments - even good ones - just to regret it a mere weeks later. Surely, you don't want to do that.
However, where will that confidence come from? As I like to say, that's where Value Research comes in - specifically, our Value Research Premium service.
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