Everyone we meet wants to be a “Smart investor.”
Who are these “Smart Investors?”
Sandeep's investing experience and study of the Financial Markets spans over 30 years. He is based in Chandigarh and has been advising more than 500 clients across the globe on Financial Planning and Wealth Management.
He has promoted “Sahayak Gurukul” which is an attempt to share thoughts and knowledge on aspects related to Personal Finance and Wealth Management. Sahayak Gurukul provides financial insights into the markets, economy and Investments. Whether you are new to the personal finance domain or a professional looking to make your money work for you, the Sahayak Gurukul blogs and workshops are curated to demystify investing, simplify complex personal finance topics and help investors make better decisions about their money.
Alongside, Sandeep conducts regular Investor Awareness Programs and workshops for Training of Mutual Fund Distributors, and workshops and seminars on Financial Planning for Corporate groups, Teachers, Doctors and Other professionals.
He has also conducted presentations, workshops and guest lectures at Management institutes for students on Financial Planning and Wealth Creation.He can be reached at:+91-9888220088, 9814112988
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Who are these “Smart Investors?”
They are generally well read and
well informed, professional, erudite and on top of their vocation or
profession. They believe in studying the markets, investing when the timing is
right and exiting when the market hits the peak. They prefer investing in
direct equity, and believe that consulting a financial advisor, or investing in
mutual funds through a distributor, investing in Debt and other asset classes are for the less
fortunate and “Dumb Investors.”
“Smart Investor” reads the pink
papers, watches the business channels and follows the market makers on social
media and make intelligent conversation in their circuit and are ready to reap
the “benefits” of their superior knowledge.
“Smart Investors” generally want
to perfectly time the market, Sell at the peak and buy at the absolute Nadir.
If they find that prices have fallen considerably after they have bought a
stock, they must buy more of the same stock and average their price without any
consideration of the fundamentals of the stock. For many “smart investors”,
their only consideration for buying a stock is the discount at which it is
trading from its 52 week high or from its 200 DMA.
“Smart Investors” believe in
exotic products as they believe that if the product offering is complicated and
difficult, only they will be able to understand it and smartly make money from
it as against conventional market wisdom
that exotic/difficult products only benefit the seller and no one else.
They also believe in Investing in
themes as they have been given the wisdom and have a God Given gift of
identifying the theme before it actually happens and can make money from it.
Iam reminded of the U.S. market,
before the turn of the Millennium, when the “Smart investors” bet heavily on
the internet and related theme that was going to “change everything.”
A famous E-TRADE ad in the U.S.
in late 1990’s urged investors to “Boot
Your Broker” and trade online. It Urged people with extra money to invest
it in stocks on the Internet through the E*TRADE service. Using a football game
as an analogy, it also explained the basics of smart investing and how to make
money.
Thousands followed that advice,
sometimes quitting their real jobs to day trade hot stocks like Yahoo and Internet
incubator CMGI (which gained almost 5000% in five years) many times a day. Nobody
expected the merry-go-round to stop, but of course it did, and even
non-day-trading investors, who had bet heavily on technology and the Internet,
lost their shirts. The S&P 500 tumbled 49% and the Nasdaq Composite
Index lost an astonishing 72% of its value.
“Smart Investors” had bet on the hottest
theme of the century, despite making initial gains, the result was exactly the
same: Very few ended up making money. Some people who had lived through
this grim experience swore off investing forever.
The same result has been repeated
several times hence, in 2008, 2013 and many other times but the “Smart
Investor” never learns, relying more on his knowledge, deep understanding and
intuition rather than market history. A common quote of the “Smart” Investor
whenever the market hits a new peak and he is buying is, “This time it is
different.”
What are the chances that you
will be able to predict market movement ?
We feel, you should not even try
it.
Your best option would be to
invest in a disciplined manner and on a regular basis. Tools like SIP are your
best options in all types of market scenarios. And if, you still want to track
market and invest at a lower point then make use of any dip that are available
and the market offers from time to time.
How likely is it that you will be
able to enter the market just at the bottom?
We would say the chances are
negligible. Several “ Smart” investors have recently burnt their hands and made
a deep hole in their pocket following the timing and averaging strategy in the
case of Yes Bank, ADAG stocks, DHFL, Jet Airways, Hotel Leela, Educomp and many
more.
If you are a long-term investor,
as you should be, remember over a long-term period every correction is going to
look like a wrinkle. If you are investing for a goal, which is 10 years away,
whether it is for your child’s higher education or your retirement, and aiming
for the Sensex at 100000 in 7 years, does it really matter whether you invest
at 36000 or 45000 Sensex?
So, rather
than trying to predict and time the market movement, participate at every turn,
make use of every opportunity. Don’t wait for a correction to invest because, “more
money is lost in waiting for the correction than in the correction itself.”
What is important is that you
should meet and consult your financial advisor, decide your financial goals,
quantify them in terms of amount and the time when you require the money.
Finalise your Asset allocation strategy based on your risk profile and fund
requirement and start your investment journey in time.
Please don’t even look at equity
markets if your investment horizon is less than five to seven years. It will be
too risky and the volatility will give you an unpleasant journey.
But the problem with most
investors, is just say Equity market and somehow greed creeps in. You want to
invest in a multibagger if not a ten bagger. All the stories you have heard in
the cocktail circuit on how wealth was multiplied by just investing in some
penny stocks, and you want to try your hand and risk your hard earned money to
multiply it.
Mom and Pop retail investors and
the so called knowledgeable professionals, who are out to be the “Smart
Investors” are known on Wall Street as "dumb money", and are always
the last ones to the party and suffer from the worst of returns.
The very nature of the equity
market is to remain volatile. Even though the long-term trajectory of the
market is upwards, the journey is not linear, but with its share of ups and
downs.
In recent times, the broader
market has corrected sharply and is trading at near its mean level but no
investor is interested in investing, rather they are waiting for further
corrections. Let the market start its upward journey and start crossing
milestones once again and our phones will not stop ringing with investors
wanting to rush their investment and not miss the party.
Strange investment behaviour,
just to share an analogy, Shoppers heading to their local mall to buy clothes
would generally buy double if there is a SALE and fewer clothes if they found
that prices had doubled. Investors are the opposite of shoppers. They tend to
get excited by higher prices for financial assets. If prices of stocks double,
it is likely that investors will want them more. And the more they go up, the
more investors tend to want them in a phenomenon known as “fear of missing
out,” or “FOMO” for short.
“Dumb” investors don’t make
investing in the stock market their daily passion. They are more likely to show
tons of patience and have a long term approach to investing. In general,
they would not be concerned about market highs and lows. They would look to
invest continually, regardless of stock price or market levels.
In essence, dumb investors are
those who aren’t tracking the daily minutia of the stock market and
consequently are not making the “best” choices with their money.
We always emphasize with
investors to work with a plan, work to achieve your financial goals, ignore all
noise, concentrate on your asset allocation, convert your investment to a
formula driven strategy, but all this sounds rather tame and dull. It is annoying
and boring in the most exciting of times. Our strategy appears as a “Dumb”
thing to do with no action happening at most times.
But every study shows that “Dumb
Investors” who follow a formula driven approach to their investing beat the
“Smart Investors” over longer periods of time, provided they don’t act “smart”
and can stay off the temptation to make a quick buck and time the market.
Markets have repeatedly proven
that The “Dumb Investors” are actually the smart investors. So, be a Dumb
Investor and enjoy your investment journey.
The purpose of investment is not
to brag about your returns and multi baggers over rounds of your favourite
Single Malt or on the Golf Course but to follow a strategy to achieve your
financial goals. And if that can happen by being "Dumb", so be it.
Happy Investing!
Stay Blessed Forever
Sandeep Sahni
Note: All information provided in this blog is for educational purposes only and does not constitute any professional advice or service. Readers are requested to consult a financial advisor before investing as investments are subject to Market Risks.
About The author
Sandeep Sahni
Sandeep is an alum of IIM Lucknow with a Post Graduate Degree (MBA class of 1988). His also an alum of Shri Ram College of Commerce, Delhi University (B.Com. Hons. Class of 1985.)
Sandeep's investing experience and study of the Financial Markets spans over 30 years. He is based in Chandigarh and has been advising more than 500 clients across the globe on Financial Planning and Wealth Management.
He has promoted “Sahayak Gurukul” which is an attempt to share thoughts and knowledge on aspects related to Personal Finance and Wealth Management. Sahayak Gurukul provides financial insights into the markets, economy and Investments. Whether you are new to the personal finance domain or a professional looking to make your money work for you, the Sahayak Gurukul blogs and workshops are curated to demystify investing, simplify complex personal finance topics and help investors make better decisions about their money.
Alongside, Sandeep conducts regular Investor Awareness Programs and workshops for Training of Mutual Fund Distributors, and workshops and seminars on Financial Planning for Corporate groups, Teachers, Doctors and Other professionals.
Through his interactions and workshops, Sandeep works towards breaking the myths and illusions about money and finance.He also writes a well read blog;
He has also conducted presentations, workshops and guest lectures at Management institutes for students on Financial Planning and Wealth Creation.He can be reached at:+91-9888220088, 9814112988
Follow us on:
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