Moving from savers to investors

Every time the market goes up all of us start investing into the market. Last quarter saw some very heavy investments. Now the market is down, with uncertainty about who would for the government in Delhi. Let me know frankly, how does it matter? It would matter in the short run, but in the long run, the markets would be up. So if you are investing for the long run this is the time. In every market cycle most of the retail investors invest when the market is up and actual investors invest in every market cycle, depending on the stock and not the market. This is the reason in the last article I had asked if one needs a financial advisor. A financial advisor would advise investing in the market based on the client’s goals and not the market cycle. What is actually happening is Mutual funds come with more schemes when the markets are up, as they are sure to get enough collections. Distributors sell these schemes saying you are getting the fund at a low NAV, price is good etc. The retail investor looks at the market and says yes currently the market is giving good returns for this type of investment and the investment looks safe or they look at past performance.

But the actual way for investing should be why am I investing? What is my risk tolerance and what is my return expectation. This is usually taken care by a financial advisor, who does Investor profiling, what are the investor’s goals or needs and then matches the product with the investor’s needs, goals and risk profile. The Market would continue to perform as always. The Mutual funds companies would then start concentrating on giving better returns and not on new products. SEBI has come with direct plans which help the investor save, but then this is only for an educated, well read and well informed customer. It is not everyone’s cup of tea to decide on where to invest. Some of their decisions might work in the short run.

Let us look at what happened in 2008, there was a meltdown in the US, nothing in India. But our markets fell, why? Just because the FII’s sold and took their money to the US. What did we do at that time? We also sold and are still scared to return to the stock markets. The FII’s returned and invested much more than they actually withdrew and are making money and we are still waiting. If during the melt down we had continued with our investment strategy based on our goals and risk profiles, we would have made much more money. But today the FII’s are making money.  The reason for us not making money is we do not believe in our stocks, but we are the same people who are buying the products made by the very same companies in whom we say we do not trust to buy the stock. We are contributing to the company’s profit by increasing its sales then why should we not participate in its growth and make money? Why sell a stock just because the FII’s have sold?

The other problem with us is we like to buy low and sell high. Remember good stocks will always be priced high. Their prices will be low only when there is distress in the market and when there is distress we just refuse to buy, even when we are getting a stock at a low price. Always remember, everyone buys a stock which is good, so the price will be high. Low price means low quality or the company is not proven. This is the reason why you will see that the FII holdings in good quality stock is high. Why do we refuse to buy into such stocks? You take any stock and check the price along with the dividends paid over 10 year period and you would have noticed that a good stock would have always gone up, irrespective of the market cycle. Take any 10 years period.

We are a nation of savers and not investors. Savings does not beat inflation. So let us slowly start upgrading ourselves to investors and make the money which is there to be made.