- June 21, 2019
- Posted by: Vipul Shah
- Category: behavioral Finance
One the frequent question which I always receive from investor(s) are “What is the risk in mutual funds investing?, “Which are the best mutual funds in India?”, “Should I opt for ULIP vs Mutual Funds?”, the list is endless, in this article I am going write why equity investing in long term is not risky.
Below is the image of NEXT NIFTY 50 stocks. NEXT Nifty 50 is a basket of 50 stocks and based on a complex methodology of these stocks NEXT NIFTY 50 Indices value is computed every day.
To create an Ideal scenario, I have purposely not selected NIFTY 50 because those are blue chip stocks and I do not want to be bias that Blue Chips are safe.
There are 3 columns
1st :- Scrip name
2nd :- Closing Price of scrip on 01/01/2008
3rd :- Closing Price of Scrip on 11/05/2018
Closing price of BSE is considered.
The reason to select 01/01/2008 is because stock markets were at peak, so no one can argue that I took the a lower price etc etc, this is the highest price available during bull run from 2003 to Jan 2008 and on 21/01/2008 real estate bubble took place.
I took the highest price to explain you what happens even if you enter the market at the peak price.
If you would have bought just 1 share each of these 50 stocks then your total investment would be Rs 29932.40
Assume you still hold the same hold as on 11/05/2018, your valuation of these 50 stocks would be Rs 109435.35 and returns in absolute terms in 365.50%
It is not ek pe ek free but ek pe teen free
Did you see any risk? if you look at it from my angle there is no risk.
You don’t have to be a Warren Buffet or Rakesh Jhunjhunwala to earn from stocks, it is very simple buy and have patience for 10 years.
If you can keep patience for 10 years returns are phenomenal.
So why do majority of the investor (you) makes losses,in spite of knowing the fact the stock market will give good returns and also knowing the facts and figures.
It is because you do not have patience
Why you do not have patience because you are not disciplined, you can’t ignore news and you have don’t have trust, trust about what will happen tomorrow
Majority of investor sold their portfolio in huge losses on 21st Jan 2008 because news were so negative after real estate bubble. It was been said that “Dollar will be toilet paper”
To avoid risk in investments, avoid news and you are exactly doing reverse, you have all the apps like moneycontrol, ETNOW in your mobile.
And these apps send you notifications every day which bother you.
Personal Life and Investment Life is very similar, if you are disciplined in personal life then you will be disciplined in your investment journey.
How many times has it happened that you kept an alarm of 6.00 AM in the morning and when that alarm goes off next morning, you are the one who snooze it.
How many times has it happened that you decided that you will quit smoking or will start jogging to reduce your weight or yoga from tomorrow but that tomorrow never comes because tomorrow never dies
If you want to avoid risk in investments, don’t gather knowledge but be disciplined and remained invested for 10+ year.
Why don’t we remain disciplined in investment?
If you are invested for next 10 years then you will meet with
- Short Term Loss
- Fear and lots of discomfort
If you make a habit to ignore the above things then you will mitigate the risk and build a corpus.
Markets will fall in short intervals and what happens when market falls, you feel stressed and what do you do when you are in stress, you don’t do what knowledge say instead you do what your habit is.
Our forefathers, our parents has a habit of fixed deposit from last 70 years, now what will you do, you will sell your stocks and keep money in fixed deposit. Don’t do these mistake, let the money continue in stocks.
When a person is habitual of something wisdom and knowledge doesn’t work
For Example : A Smoker has a habit of smoking and he/she knows that if I stop smoking my health would be far better, but he can’t quit smoking because “Habit is a shirt made of Iron”
I can share knowledge but not the discipline.
Whether you invest in best mutual funds in India or Index funds without patience and discipline it is difficult to create wealth from equities.
I personally remain invested in Mutual funds from 2007 and purchased a home without a home loan. That investment journey taught me a lot and now I help investor reach their financial goals
For Personal Finance queries, you can follow,tweet out and I’ll be happy to assist you –