Hi Friend,
Many of us have this dilemma now. I am sure almost all of us had the same dilemma even when the SENSEX was at 8000 level. I am also sure that we will have this dilemma in the future as well.
The reason for this dilemma is, most of us (if not all) want certainty in the outcome of our actions (investment in this case). The "outcome" is a future event and future can never be predicted with certainty.
If you don't agree with me, take our own case. All of us passed exams to reach where we are now.
If I ask that how many of us were sure of getting "pass marks" in our university exams, probably most of us were.
If I ask that how many of us were sure of getting 60% marks in the exams, probably majority of us were.
And if I ask that how many of us were sure of getting 85% marks in the exams, probably a very small percentage.
And finally if I ask how any of us were sure of getting 100% marks in our exams, I am sure none of us.
"One can never succeed all the time", and we tend to forget this simple but important fact when it comes to Investment.
Because we ignore this fact, we tend to react in an extreme manner when the results were not to our expectations (100 %!).
We go to the extremes either by saying investing in equity is gambling / pure luck or we go for the safety (perceived but not actual, inflation eats into your investments and you will never know of it) of fixed income instruments like Fixed Deposits, PPF, GPF and Money back policies!
Problem is in our mind not in Equity investments:
- This is what I mean when I say that Discipline is the most important thing in Investment, “Discipline to control our emotions and our thought process and to do things which need to be done (they may not be comfortable psychologically) like keep investing even when the market are crashing".
- Had you or any of your Friends have a SIP that is running since January 2008 or earlier, till now, in a good equity based diversified mutual Fund, in spite of all the market turmoil, you can observe that the investment would have been in positive zone, and in some cases done pretty well(this is particularly true in cases where investments were increased as the market kept falling)
- Let us not try to Outguess / Predict market and waste our time, the probability of success in doing so on a continuous basis is Nil.
- The effort that one puts in guessing and psychological stress that one may undergo are better spent in one's profession. And the time one saves can be better spent with friends and family.
- If you don't agree with me then check with any one of the "nervous wrecks" whom you get to see around your cubicle with an online trading portal open on his/her desktop.
- Check their track record for the past 4 or 5 years in whole and it won't take much time to figure out that a good diversified equity based mutual fund has outperformed them with good margin in majority of the cases (if not all). Most of them are doing it to satisfy their ego/to satisfy their gambling tendencies etc.
- If you want to invest (not gamble) then what becomes important is how regularly you do, how much you do and for how long would you do. The longer the better.
I am attaching an article from CRISIL which says that Mutual Funds which stay invested in markets rather than having high cash component in portfolio (the same applies to us) will outperform in the long run.
I am also attaching an Interview of a senior Fund Manager from Business Standard on what to expect from 2010.
Happy investing.
