Why long-term investing and Benjamin’s wisdom need an overhaul
Benjamin Graham, a legendary figure and the guru of Warren Buffett, stands as an enduring beacon of wisdom in the world of investing. My intent isn’t to challenge his timeless principles but to shed light on the misinterpretation that has enveloped the notion of ‘long-term investing’ over the years. Long-term financial objectives should unquestionably remain at the forefront, yet the conventional ‘invest and forget’ approach no longer fits our dynamic landscape. Viewing the challenges of our ever-evolving world as a call to active engagement in your investment journey is paramount. This entails the delicate art of balancing action and inaction, driven by a meticulous portfolio assessment.Let me share financial strategies beyond the usual ‘invest and forget’ approach, allowing you to make better-informed decisions.
For the direct stock market investor:
Should you buy during market dips?
Seasoned investors might consider buying during market dips, displaying agility with their stock portfolios. However, there’s a fine line between seizing an opportunity and catching a falling knife or, in other words, buying when there’s blood on the street. How do you discern whether the blood is not your own (especially for those already fully invested) or whether the knife has yet to fall further?It’s essential to differentiate between a market bottom and an ongoing descent. Experienced investors are less prone to grave errors, having learned from past mistakes. As an investor, businessman, and advisor, I can confidently state that becoming a proficient stock market investor typically involves making mistakes, for instance, selling off winning stocks prematurely, booking losses hastily instead of exercising patience, lacking dry powder (cash) to capitalise on promising buying opportunities for better returns, or straying from a well-planned asset allocation. So, unless you are certain, do not assume that the market has reached its nadir. Those who lived through the market crises of 2000 or 2008 understand the significance of this caution. Therefore, it’s crucial to acknowledge that you might not know what you don’t know. If you are a part-time investor managing both a full-time job and a business, it’s advisable to approach your shopping spree cautiously in the current circumstances.
Don’t buy stocks at any price
What guides your investment choices—diligent research or mere hearsay, external influence, or news?
I find many people wanting to or actually investing in stocks like Suzlon, Yes Bank, or Idea, perhaps swayed by the belief that they would yield substantial gains. Well, they may very well because you never know who is playing with the stocks, sentiments or fundamentals, mad bull runs, operators, and these factors can also drive these penny stocks trading at around Rs. 10, 16, or 32. My core questions are: Are these the stocks you genuinely want to buy based solely on the turnaround story? What percentage of your portfolio is this, and have you thoroughly analysed these companies? What percentage of your portfolio are they a part of, and have you done a thorough analysis of these companies, and are they better than other options on the market?
Can you hire others to do push-ups for you?
Many people today base their stock investments on news, WhatsApp University, influencers and whatnot. While that may have worked for some in the past due to the insane bull run after the COVID-19 fall, it will not last. An influencer was recently fined Rs17 crores for falsely claiming to generate profits on trading. In fact, he lost a couple of crores trading, and all the money he made was by selling courses which guaranteed returns of 200 percent and whatnot. Why would someone sell Rs500 courses if such gains were possible? With those types of returns, they’d outperform Mukesh Ambani in less than a decade.
Discount anyone who claims to have made 50 percent or 100 percent returns in the last 2.5 years.
For the mutual fund investor:
– Keep up with your SIPs (Systematic Investment Plans) and let dollar-cost averaging help you steadily build a robust portfolio while mitigating market volatility.- If you have extra cash to invest, do it gradually, taking advantage of market dips, but always follow a well-thought-out plan. Stick to your risk tolerance and asset allocation, or consider mutual funds, where the management is in the hands of experienced fund managers, advisors, or distributors.- Remember, “Mutual funds sahi hai!” You’ve probably witnessed the volatility of direct stock investments and how mutual funds can shield you from the shocks individual stocks can deliver. While stocks can offer significant returns, they can also erode your wealth if not managed correctly.- Consider converting your liquid funds into equity funds to rebalance and optimise your investment during a market correction.The writer is a Chartered Accountant and founder of NRP Capitals.
