Learning from the Chinese Bamboo Tree

Not sure if you have heard of this particular species of bamboo tree in China, which takes around 5 years for the shoots to show up, but in the next 3 months it grows to a height of around 80 feet. So what the farmer does is for 5 years he just keeps watering and waiting and then in the next 3 months he just reaps the benefits. This is very similar to the stock market. Sometimes the market just keeps fluctuating for years with no major movements and then all of a sudden, the markets just keep going up and that is the time to reap the benefits. This happened last year, when the markets just went up, those who waited, just reaped the benefits. Going by this does it mean that this is not the right time to invest in the stock market. In fact, if you do systematic investments any time is the best time.

Many persons just quit watering just because they do not see the shoots, but then you have to be patient and fruits you will bear. Many of them selected the right stocks, but only walked out, just because they were tired of waiting. Investing in stocks involves waiting time, nothing happens overnight, but then nobody is ready to wait. Even though you have heard of so many success stories, you are not ready to wait. It’s not that you need the money immediately, but it’s the impatience. If I tell you invest Rs. 100/- and I’ll give you Rs. 200/- after two years, you will not accept as the waiting period is long. But if I tell you after one year you will get Rs.130/- but if you keep the money for 2 years you will get Rs.200/- you might accept. The only reason is for the additional waiting period of 1 year you could double your money. If you actually look at it, your waiting period in both the cases is 2 years, but our mind tricks us. We look for immediate results. Our mind thinks it’s just one year. If in the same way we work with a plan that you will get double only after 5 years, you just keep waiting and you will bear the fruits, but if you invest with that horizon and expect returns faster, you will not reach your target.

There are many persons who put their money in stock and wait, after the first year, the returns are small, lesser than the fixed deposit rate. They start complaining. Next year the returns are almost equal to the fixed deposit rate and they start wondering if they had taken the right decision. In the third year the markets fall and their stock are in red. Now they are on the verge of removing their money. They wait have waiting for 3 years. In the fourth year, the market moves up marginally and your investments are now at cost. This time they are frustrated and think luck is not on their side. They decide to go one more year and again the markets move up just marginally. Now the person decides to quit and market gives a small leap. This is when the shoots start showing and in a few month’s time the markets start soaring and gives you a return much better than any other investment option. You could take the parallel of the Indian stock market from 2007/8 to 2013/4 almost same number of years and those who waited made the money.

There would have been many who quit on the way. But those who waited made the money. So just like the Chinese bamboo tree, in equity investments one should wait till the money grows.