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Investing in stocks is always profitable, but...

By P V Subramanyam
December 07, 2014 13:34 IST
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...is not always easy. Here's why!

For those who are asking when will there be a bull market in India, you need to get your Math in place. This is a bull market!

At the beginning of the year the BSE Sensex was at 20,000; now it is in excess of 28000 -- within spitting distance of 30k.

It is easier, much easier to invest in a bear market -- or a sideways market but investing in a bull market is very tough.

The mistakes that you make now can haunt you for a life time.

You could invest in fantastic companies, but at superlative valuations. Such investments could take 10 YEARS for you to recover your principal, if at all.

So let us look at some facts:

  • The greatest wealth of this century has been created ONLY by the equity markets -- even oil magnates, real estate magnates, technology geniuses and steel magnates made money ONLY by listing in the equity markets. No markets, no wealth. Simple.
  • Most of the wealth has been created ONLY in democracies
  • Big investors like Templeton and Buffett invested all through their lives -- only their portfolio got altered. HOWEVER at no stage did they go to less than 60 per cent in equities :-)
  • Putting your money to use as soon as possible vs timing the market is a perennial fight
  • Take a long term look at the BSE Sensex chart -- IT ALWAYS GOES UP -- like your salary, however over a shorter term the graph will not be so clear.
  • Investing to get market returns is easy (minus fund manager expenses), but getting extraordinary returns is IMPOSSIBLE, if you remove the LUCK factor.

With this background, let me talk about investing in a bull market (right now we are in one):

1. It is scary that the market may run up to 40,000 or even 100,000 in the next 3 years and if you are not invested, YOU WILL MISS the bus.

How can you stop your mind from processing such thoughts? If you did not have the fear, congratulations, I just planted it

2. My net worth is Rs 18 lakh, I just listened to my friend and bought 100,000 Sona Steering at Rs 9; now it is Rs 56; should I leave my job and do this full time? Hmm. Most people cannot distinguish between luck and skill in a bull market. Only a bear market teaches that.

3. Fear that you will be left behind, greed that you will get rich quick, and the belief that the next 10 years of your investing lives will see a 40 per cent per annum return should be your WORST enemies.

Remember all these three conditions when you invest tomorrow morning.

4. At the background is another fear: if I invest in this market and the market tanks, in how many years will I recover my principal, if at all. Of course most people do not ever ask this question, because they are SURE that they are in a raging bull market which is going to take the Sensex from 28k to 93k in one breath. All the best to you.

5. For people like us who have seen the index at 100, we do understand that 29,000 is just a number. However if you are guided by the amazing media personalities, 29k may be a very exciting number.

Please contain your excitement, or start screaming like those good looking anchors. I can ASSURE you if you saw their personal portfolios, you will realise that they are actors paid to perform. They do not even need to understand what they are saying. Forget act on that.

Let me remind you. I bought last week. I also sold something else to fund this purchase.

There are no SECULAR bull markets in which all companies participate. Sell the guys who are participating, and be investing in those who are not.

I never said investing in equities is easy, but always said it is profitable. With a little nudge from lady luck.

There is lots that you have to be careful about in a bull market. Continue your SIPs. Even ramping up may not be bad, but be careful if you are trying direct equities in midcaps.

It maybe a great time to invest. It may also be a great time to juggle your portfolio. Just check your stomach muscles.

Photograph: Reuters

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P V Subramanyam