This too shall pass
There is just way too much doom & gloom in the financial markets, so here is a list of things to keep in mind before dumping your entire equity portfolio:
- Equities offer the best long-term inflation-adjusted returns across all asset classes.
- There are times to buy (be greedy) and times to sell (panic). This is not a time to panic, all evidence to the contrary. The time to sell was October 07 - January 08.
- Indian companies aren’t going to suddenly stop revenues or earning profits. There will be sector-specific bumps, but then, there’s cycles in everything.
- Only 3-5% of Indian retail wealth is invested in the stock market. Similarly, a very small % of companies are listed on the stock exchanges. Imagine a time when 20-30% of wealth is in equities, and 10 times as many companies are publicly traded. There will be tons of opportunities to make money via trading & investing over the next several years.
- Things like FDs and gold should be used strategically to hold cash while waiting for great risk/reward opportunities. Switching your assets wholesale to these asset classes for the long-term may not be that great an idea.
- The next few months will offer great opportunities for stock picking. For those with no time or inclination to do so, there is always the index fund route. Either ways, there will be good entry points for both traders as well as investors soon. Keep your gun-powder dry.
- Overhead matters a lot - it is important to cut down on brokerage costs, expense fees, mutual fund loads, unnecessary transactions and taxes. If you pay attention to all of these, you can further boost your returns.
- Ignore what the media says. The media gets paid to get your attention, not to generate absolute returns.
- Ignore what (most) fund managers say - they get paid as a % of AUM, not if they generate absolute returns.
Don’t panic. Be patient. Making money is about 3 things:
- Probabilities - Are the odds in your favor?
- Money management - Do you know your risk?
- Luck - Shit happens.
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