Invest and recollect

Friday, Feb 15 2018
Source/Contribution by : NJ Publications

"Someone's sitting in the shade today because
someone planted a tree a long time ago"
~ Warren Buffet

The priests of investment preach the value of long term investing. You have to give time to the seeds of your principal to grow into a wealthy tree, so that you can relax under the shade of its elongated branches prospering with dense green leaves and fruits. Yet there are some investors who put money in a product, only to redeem it after six months and they divert the money to some other product, which they believe is the next big thing. And then the markets start rising, which tempts them to sell their investment and book profits. They pay heed to their peers who advise them to invest in a particular investment product and then the other peers who advise them to sell it and invest in some other investment product. These investors aim to build wealth but end up the other way round. If these investors don't do anything but invest, be patient and relax, they can actualize their wealth targets. Following is the example of an investor who invested but kept fidgeting with his portfolio as per the market movements. Lets see how his portfolio fared over 13 years.

Mr. Sunil Bhatia, a shopkeeper by profession, very aggressive in nature, wanted to make money through stocks. He studied a lot, read articles on equity trading, watched business news channels and then started investing in 1997. He invested R40,000 in stocks from diverse sectors. In the beginning of 2000, the value of his portfolio was R60,000. He kept timing the market, did a little purchase and sale here and there. By 2005, his portfolio was valued at R50,000 after selling stocks worth R15,000, when the markets peaked in between. In 2006, the markets skyrocketed, and he booked profits, he sold the remaining portfolio for R1,00,000. In the year 2007, the markets started rising further, but he had sold whatever he had, so at the end of 2007, he again bought stocks for R1,00,000, and then came the downturn, the value of his portfolio came down to R40,000 in 2009, he was disheartened and sold his portfolio for R60,000 in the beginning of 2010 when the markets picked up a bit. What he invested was R40,000 in 1997 and R1,00,000 in 2007.

What he redeemed = R15,000 in 2005, R1,00,000 in 2006 and R60,000 in 2010. Total profits on R40,000 over 13 years = R35,000 (Annualised Returns 6.23%) If he had invested R40,000 in 1997 And didn't touch it till the beginning of 2010, in spite of the turbulence in the markets, his investment value would have been around R2,25,700* Total profits on R40,000 over 13 years = R185,700 (Annualised Returns 14.23%)

*(Calculated on the basis of growth in Sensex. Transaction dates assumed as 1st. January for stated years.)

This story reveals how the investor, who kept timing the market, remained active in grabbing the opportunities could not make as much money as he would have made if he didn't do anything at all. The latter is called 'invest and forget'. Mutual Fund is a divine product which enables you to easily implement the 'invest and forget' strategy. A mutual fund is managed by professionals who direct your money in well researched and diverse stocks or debt instruments, in line with the investment objectives as agreed upon between you and the scheme. So your task is to discuss your goals and time horizon with your advisor, who will help you in selecting mutual fund schemes according to the discussion, invest in them and relax. You have to be patient and give time to your investment. Let's take an example of a fund, Reliance Growth Fund. It is an open ended equity scheme. If someone would have invested R10,000 in this scheme on the inception date (8/10/1995) and didn't do anything after that, let's see what would it be its worth now? R10,000 invested on 8/10/1995 in Reliance Growth Fund = R821,070 as on 30 June 16 (23.68% Annualised Returns) R10,000 invested on 8/10/1995 in Benchmark (S & P BSE Sensex) = R74,994 as on 30 June 16 (10.20% Annualised Returns)

(Source:Company Website:

The above figures clearly state that if the investor invested in this scheme, not only would he have had gigantic gains, but also he would have outperformed the benchmark. People do not invest because the investment process is alien to them or they do not have the time to manage their investments and it seems complicated for beginners who don't have the requisite knowledge. Following is the story of an investor who didn't do anything but forgot about his investments. Lets see how the investments fared. An old woman walks in a Mutual Fund Office in Amritsar on a sunny June day, perplexed, she manages to take out a small purse from her jute bag. She mysteriously opens the purse and unveils a four-folded piece of paper covered in dust and asks at the reception desk "Bhaiya iska kuch milega?". The receptionist sees, it was a Mutual Fund transaction slip, so she directs her to a representative. The representative looked at the slip and then at the woman, awe-struck, and asks her after taking a deep breath, "Mataji, ye apko kahan se mila?" The old hag replied, "Mere pati ka pichle 2 saal pehle dehaant ho gya, badi musibat mein hain hum log, yeh paper mujhe kuch din pehle almaari ki safaai karte samay mila tha". The representative congratulated her and said "Mataji aj ghar Mithai leke jana, ye paper 1.5 lakh rupay ka hai". The Lady elated with joy took out 8 more papers from the magic bag and the total worth of those papers was 17 Lakh rupees. The lady walked back home drenched in tears of happiness. This anecdote reveals how ignorance proved to be a bliss for the poor old lady. Her husband invested in mutual funds and kept the slips inside the cupboards and not informed anyone, neither did he liquidate. While this lady was lucky enough, it cannot be that lucky for everyone else. We have modified the ignorant investment process to a "invest and recollect" one. It goes as follows:

Go to a Financial Advisor
Every man does his own business best. Devising the right investment strategy, the right fit as per your goals, investment horizon, age, risk appetite, is the job of your financial advisor. An investor may not have the requisite knowledge and skills to perform this task, so its best to handover the job to the expert.

Stick to your plan
Once you and your advisor have concocted your investment, do not fiddle with it, do not panic when you are losing since this phase will pass by, do not be excited and sell when you gain, do not pay heed to any investment mantra professed by your friend. Just keep in mind you are here for the long run, the markets will fall only to rise again, and your portfolio will endure all the storms.

Meet your advisor regularly to incorporate any changes as advised by him The investment plan though requires a long span, yet it calls for modifications, additions and subtractions to ensure that you are following your vision. For this, you must meet your advisor regularly. Say your ideal Debt Equity bifurcation is 30:50, but due to market movements, it has become 60:40, so the advisor will modify your plan to bring it back to 30:50. Or may be, you were unmarried at the time of designing the plan, but now you have your wife with you and you are expecting a child soon, so necessary modifications will be required to encompass the new members of your family. Your advisor will check for any holes in your pocket and stitch them for you.

Keep it Simple
If you are new to investing, or do not have the knowledge or time to keep track of your investments, keep it simple. You should always ask your advisor to include simpler products like mutual funds, since you are assured that there are professionals who are doing their best to protect and grow your money. You should never invest in something which you do not understand.

" Invest and recollect strategy will work wonders. "
" Make the right choice and relax. Patience will pay. "

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