WAY TO MAKE MONEY WITH JOY

WAY TO MAKE MONEY WITH JOY.

The term “INVESTMENT” is different from person to person and that affects their investment behaviour too. It’s very crucial to understand the term “INVESTMENT”. Many investors are unable to differentiate between SAVINGS and INVESTMENT.

Savings refers to that part of disposable income, which is not used in consumption, i.e. whatever remains in the hands of a person, after paying all the expenses. In short, savings are made to fulfill short term or urgent requirements where you cannot take a high risk.

The word investment can be defined in many ways according to different theories and principles. It is a term that can be used in number of contexts. However, the different meanings of “investment” are more alike than dissimilar.

Generally, investment is the application of money or other assets in the hope that in the future it would appreciate or generate more income.

In layman terms, Investment is the action or process of investing money for profit.

jenish 1jenish 2

When we hear about investment, we first try to find out risk associated with the same. In debt instruments, risk is next to ZERO while in equity it is highest in short term and it reduces with increase in the time horizon.

We have recently seen many advertisement of Reliance Growth Fund multiplying money by 100 times over last 22 years. There are many other funds too which are on the same path.

But, ultimate question is that “Who has made these handsome returns?”

It’s only someone who stayed invested without a break, not worrying about corrections and bear markets, not feeling uneasy during roaring bull markets and not hopping in and out of the markets trying to time the tops and bottoms.

We all know and experienced that investor returns and investment returns do not match due to the behavioral gap; Investors are always trying to time the entry and exit and chasing performance by doing constant churning in portfolio and even many financial advisors are following the same theory and ultimately not making money for their clients. Isn’t it? It’s only human to be so but the end result is that their clients do not get the benefit of staying the course.

 jenish 3jenish 4

In general, Definition of long term investment is different from person to person. For many Investors, long terms in equity investment means Intraday, BTST, Six Months or One Year and very few are investing for a long term i.e. more than 1 or 2 years and very few are investing for more than 5 years. For those investors – “A share is not a lottery ticket… It’s a part-ownership of a business…” So, in equity we have to give time.

So, for those investors who may fear when market makes new highs. First understand that 30,000 or 31,000 is only a mere number to measure the journey of Sensex. Thirty nine years ago, it has started with 100 and has multiplied 300 times over 4 decades.

At a level of 100 or 1000, investors then would have had difficulty in imagining a level of 31,000. Now we may find 50,000 or 100,000 unimaginable. Recently, Morgan Stanley has predicted 3 times rise of equity market in next 5 years. Sensex would touch this and much more in the course of its journey.  We don’t know is only … When ?

The important thing is that markets would continue to keep making new highs with periodical corrections which no one can judge perfectly. We are optimistic that our economy and businesses would do very well over next one decade and all investors should be optimistic forever in order to make handsome returns and market has proved that time and again,provided you have invested in a good businesses. What you need to do is simply ignore all kind of noises and just stay invested in good businesses. Do not get scared by corrections on one hand  or become uneasy by bull run or the other hand. Keeping yourself poised in market turbulence is  the way of wealth creation.

In market, returns never come in a linear form and it does always be a lumpy. Many times it may possible that stock that you own does not move up or down even for 3- 4 years and suddenly goes up after 4thor 5thyear  and gets double in a single year. This is nothing but a result of your patience, frustration of last 3 or 4 years and confidence in a good business. Many stocks behave in the same way.

Shocking experience is that many investors are investing in debt for a long term like in Fixed Deposit, Post Office Scheme (NSC, PPF, KVP, POMIS, POTD, etc.), Endowment Plans, Bonds and Bond Funds (Corporate bonds, government securities, money market instruments) and even in Gold and real Estates. We are good at holding assets like gold and real estates. The house where we own might be bought by our father or grandfather and our next generation may continue to own it and similar pattern we can observe in gold too despite of bearing low returns. We have good experience in both real estate and gold. Why? The answer is very simple. We hold it for a long term and rarely make losses because volatility gets smoothened in long term. Many times we also observed that within 4 or 5 years real estate didn’t appreciate but we are ok with that and even with gold too. Why not in Equity? It also required the same behavior. Many investors are not making money because equity is highly liquid asset class and on every next day investor are able to find buyers with quoted price. This corrections and volatility make people not to hold this high return asset.

Investor’s behavior ensures his/her returns that whether he/she will get below average, average or above average returns.

The key point is that in short term share price move as per sentiments and liquidity while in long term it always follow earnings. Once a company keeps growing, its earning always follows. In case of equity, we should always treat it as good as an investment in house or gold.

History of Sensex and Returns it has delivered.

  1. SENSEX annualized return since inception 1979 has been 17% including dividend.
  2. There are only 21 days when SENSEX has hit a Six (More than 6% Daily Return).
  3. There are only 90 days when SENSEX has hit a Four (More than 4 % Daily Return).

table 2

Do not take decision in hassle & greed. Evaluate all aspects very carefully and pick up right option according to your needs and requirements. Also evaluate that how much risk you need to take at the time of an investment.It’s very clear from the above table that equity is the only asset class which can give better return as compared to other asset classes in long-term but only by staying on the pitch rather than timing the market.

Do not take overdose of any investment avenues in your portfolio without evaluating. Asset allocation is also very crucial for wealth creation.

Focus should not be on…

       MAXIMUM Return…

           But, it’s on OPTIMUM return according to risk appetite.

Leave a Reply

Your email address will not be published. Required fields are marked *

three + ten =