NEW DELHI: It is natural for young blood entering the stock market to try and hunt quick bucks and dream of becoming a successful investor.
In the process, they often end up chasing known trades and making silly investment decisions. They take to intraday trade over long-term investment, and do not hesitate to try out derivatives, products Warren Buffett terms as financial weapons of mass destruction.
The result: many of them eventually give up on it all after burning their fingers very fast.
Market veterans say when in the market, one should keep the ‘maansik santulan’ intact. This is what ace investors do.
“The first principle is to think long term, because investing is a game of compounding and it requires time. An investment horizon of 20 years or 30 years can make a huge difference. One of the strange things that happens when you are very young is that you tend to be very short term-oriented. When you get older, you become very long term-oriented. Ideally, it should be the other way. When you are young, being long term-oriented and thinking of the next 20 years is important,” said Rashesh Shah, Chairman and CEO, Edelweiss Group.
Shah says investing is like old wine – the longer you keep it, the better it is. “You make mistakes; but make them as affordable as possible in your early part. So do not go and borrow a lot of money and bet your house on that. When it hurts you in the early part, you become so risk-conscious and risk averse that you would not be able to capitalise on it,” he said.
As a third mantra, Shah suggests one must maintain emotional capital i.e. ‘mansik santulan’ or the mental balance as “investment should be there to let you to sleep at night. If they keep you awake at night, then something wrong is happening.”
These changes are already visible in the market, especially when one looks at the changed dynamics in the domestic mutual fund industry.
Ajay Srinivasan, CEO, Aditya Birla Financial Services, said the MF industry received Rs 4,000 odd crore in new SIPs last month.
“This is a big change. The more retail investors access the market through SIPs, the more likely they are able to deal with volatility. What you have seen is that when markets correct, one does not see an outflow in mutual funds, which is what we used to see earlier. I have been in this industry for very long and I have seen how it has evolved. I think SIP is one big change in the industry that is driving a lot,” he said.
Investor education, too, is rising, Srinivasan noted.
“The Sebi move to make sure that every mutual fund invests in investor education has clearly changed the understanding of the common investor about mutual funds. This combination of SIPs and investor education has led to much more stable inflows,” he said.