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The securities arm of a well-known bank that serves both Institutional and Retail clients gave SELL rating on Hero Motorcorp for Institutional clients and ACCUMULATE rating for Retail clients on the same day. I guess they wanted to keep making the market on this stock and ensure there were enough buyers for the institutional sellers. I am a patient investor, but such practices make me so impatient (and aggravated)!
We all are getting numb with the market volatility in the last one year with almost no growth. Lok Sabha elections are looming and the question on top of every one's mind is, which party will come to power in the next election and what will be the impact? See below for data on market performance for the 3-year period starting just before the three previous elections. The general mood is also captured in each of this period. As you can see, markets always perform according to a long-term view (country's potential) even though the short-term view (election results, daily domestic and international news) may suggest otherwise.
There are pundits and astrologers who are paid handsomely to predict the election results and the actions that should be taken right now. Mitraz is certainly not one of those pundits. What we do best is to do asset allocation, select products for the long-term, invest and wait patiently for the story to play out. See below for the market performance after every bearish phase.
Investors who stayed put in the market made more than normal returns in 2-3 years' time frame after the downfall of the market. Even better are the people who increased their investment holding during the bearish phase thus enjoying much higher returns due to lower entry points.
I want to reiterate on three behaviour biases that interfere with the right investment actions.
1. Instant Gratification
When we buy a particular investment instrument, we want it to start going UP immediately. When we sell an investment, we want it to start going DOWN immediately. We want to have the instant gratification of having made the right decision. This also applies to our portfolios and new investors. We enjoy watching our investments every day when they go UP and we sulk when they go DOWN. Often, we base our decisions on the 52-week price history which actually has no role in selecting investments.
2. Selecting the Best-Case Scenario
We always want to be rewarded regardless of the market situation. When markets are not doing well then, we compare our portfolio performance with Fixed Deposits and when markets are doing well then, we compare our portfolio performance with the flavour (sector or stock) of that time. Investment in the market comes with its own risks and the only way out is PRUDENT RISK MANAGEMENT which is not about the Best-Case scenario. If you engage in adventure sports (risk-taking), you ensure that you have the proper equipment and the harnesses (risk management) in place. Market volatility has always been a great opportunity for long-term investors.
3. Projecting the Present on the Future
We inherently believe that the present trend will continue forever which leads to our behaviour of investing more in a Bull market and not investing (or pulling out) in a Bear market. Our willingness to take risk becomes AGGRESSIVE during an upward trend and CONSERVATIVE during a downward trend. We swear by Warren Buffet's philosophy of "Be fearful when others are greedy and greedy when others are fearful" but it becomes difficult to follow it in the face of market volatility.
While many algorithms may claim to devise the most promising equation for getting extraordinary returns, your Adviser is the X that helps you manage your emotions and wade through the stormy market situations. As Mr. Buffet has rightly said "The stock market is a device for transferring money from the impatient to the patient".
The writer is the Managing Director of Mitraz Financial Services Pvt. Ltd and can be contacted at firstname.lastname@example.org