Whenever there is a sustained FALL in Markets...almost all
Advisors start getting calls/mails from their investors.
Thankfully, due to constant mentoring and education, the regular sharing and mentoring is to ehlp my investors face periods of negative returns.
99% of my investors
understand the POWER OF COMPOUNDING is via LONG TERM and Volatility is a part
and parcel of the Investment Cycle
However, some 1% of my investors (almost all NEW, who
recently started investment through me) start showing their FEARs and ask for
my guidance.
Here is one of my NEWER investors who started investing less than a year back
and obviously needs lot of HAND-HOLDING.
He sent a screenshot of his investment and expressed his concern at the FALL.
Natural reaction and very understandable.
Here is my reply to him
Dear Investor,
I completely understand your concern on the fall in your
Portfolio.
Nobody likes to see their portfolio going DOWN but its essential to remember that these are NOTIONAL LOSS.
Though I keep communicating over Whatsapp, Facebook,
Twitter, Email...still there this input is to instill more confidence about the
Wealth Creation via Equity Mutual Funds
Face the Right
Direction, and Keep Walking
“If we are facing in the right direction, all we have to do
is keep on walking,” goes a Buddhist proverb.
So, when the Direction is right....in this case...our
Direction is Wealth Creation
and our vehicle also right...that is the EQUITY MUTUAL FUNDS...then there is
absolutely no need to keep looking at the NAV on a daily or even a Weekly
basis.
Sometimes it makes great sense to be like an Ostrich and ignore the noise all
around.
I will be like a SWAN and ensure that you invest only in the RIGHT funds.....Funds
that suit your profile and horizon.
The October 2017 circular which required grouping their
Schemes under Specified Categories like Large Cap, Mid Cap, etc based on Market
cap of the underlying stocks called the
CATEGORISATION & RATIONALISATION OF MUTUAL FUND SCHEMES took the
wind out of Midcap/Small Cap Rally.
Not just that...it resulted in a near CARNAGE as Fund after
Fund dumped all their non-Large Cap holdings and increasing their exposure to
Large Caps
Of course, the SEBI circular only acted as a trigger for the
sell off as almost the entire Midcap and Small Cap space was extremely
overvalued.
So....boom....the Large Cap Funds went UP
So....it is clearly evident with these numbers
FROM JAN 2018 TO JULY 2018...
Sensex UP by 10%
Large Cap Index UP by 6%
Mid Cap Index DOWN by 11%
Small Cap Index DOWN by 14%
Even in Sensex/Nifty, the Rise has been restricted to largely only 5 stocks. It has been that CONCENTRATED!
When the variation is so drastic....there WILL be variation
in your Funds and the Sensex
Your fund will not be mirroring the Sensex ...right??
Our Funds are neither in Sensex or Nifty!! Nor do our funds
any significant stocks which make up the Sensex/Nifty and its neither a surprise
nor a shock that your Mutual Fund NAV is down and down quite significantly.
The Sensex had a BIG RALLY from 3000 levels to 21000 levels
between 2003-2007. However, the rise was not at all linear.
The Sensex fell more than 10% for 13 times in this period
and out of which 1 time it was a 23% fall and another time it was a 29% fall.
Just imagine if you had WITHDRAWAN your money from the
Markets when these fall happened.
You would have missed the 700% RISE for panicking after a 10%
fall!
These falls of 10% are an opportunity to invest rather than getting
panicky. And, you as an Accumulator for funds should actually be HAPPY if the
NAV is coming down.
BUT WHAT IF THIS BECOMES A REPEAT OF
2008 FALL?
Very valid question and quite understandable. NO one has the answer for this.
In the last 10&half years, the market has moved UP by
only 77% compared to the 700% rise in the 2003-2007 Bull Run. My interaction
with Fellow Advisors, Fund Managers and my experience says that the 2008 Fall
WILL NEVER get repeated as at that time the Markets had rallied ABNORMALLY.
Still, if it happens, Markets would have reached Bubble
stage and could be easily identifiable and I will definitely GUIDE AND HELP you
to protect your Wealth. RELAX!!
And, of course people
talk about 2008 fall of 52% plus but no one talks about the BOUNCE BACK OF 81%
the following year in 2009!!!
SO, WHAT SHOULD I DO NOW?
The Midcap Fall and the Small Cap Fall does not mean that these companies are selling lesser number of Soaps, lesser number of Clothes.
Focussing on Businesses instead of Stock Prices and NAVs is a good thing, especially in Bearish Times.
Focus on the BIGGER PICTURE....Your Goals.
When Situations Change, nobody knows how to respond.
Thankfully, being in Equities for the last 27 years has helped me understand
how to respond to this type of situation exactly as this happened many number
of times in my professional career.
STOPPING Your SIPs at this point of time would nothing short
of a Disaster. It will hamper your Wealth Creation Hugely.
Yes....I AM BAISED towards SIPs. But there is no other
EFFECTIVE method of investing in Equity Markets which has the capability to
deliver you ABOVE AVERAGE RETURNS.
And, my dear friend, SIPs are actually more BENEFICIAL IN A
DOWNWARD MARKET than in a Upward Market.
Stopping Sip and worse, REDEEMING at this point of time will only convert temporary Notional Loss into a PERMANENT REAL LOSS!
Firstly, understand why you had invested in the particular
fund.....
Does it still make sense to continue?
Has my Asset Allocation altered?
Have my goals been reasonably provided for?
Are my goals still far off?
The change is a fundamental change to the fund but not to
your GOALS.
If your goals are still far away...it still makes sense to continue to stay
invested (and in fact, add more) Small Cap and Mid Caps.
The History has proved time and again that Midcaps and Small
Caps have given GREATER returns than Large Caps.
The volatility will only increase in the NAVs from here on.
But, you need to think LONG TERM and worry least about the fluctuations.
These
fluctuations and falls of 10% plus are actually a great time to INCREASE your
Equity Exposure if your Goals and Asset Allocation allows you to.
As your well-wisher, I would ensure that you stay the course
and get out of this Temporary Blip without you suffering a stroke and create
REAL WEALTH.
If your goals are quite far...CONTINUE to STAY INVESTED.
If your finances allow, do SIP TOP-UP and even consider investing a One Time
Lumpsum.
And, finally, at the cost of repeating, let me reiterate....
1.
Fluctuations are inevitable and is a part and
parcel of Equities as with any other Business2.
Equities is NOT for Short Term. Never Was. Never
will be3.
Positive Growth is a Given. Equities have
outperformed all other Asset Classes by a Reasonable Margin consistently. The
only problem is the accompanying FLUCTUATIONS. You have to Bear with it.
4.
Constantly looking at your NAVs on a
daily/weekly basis will not make the NAVs go Up but your BP will definitely go
UP for sure.....Avoid looking at the same on a day to day basis5.
Stick to Asset Allocation. Stick to Good Quality
Funds. Invest with a Goal in Mind and in Funds which align to your Goal.
6.
Dont listen to CNBC/ET NOW experts. It will only
make you nervous.
7.
Treat the Falls as an Opportunities to buy more
units of Good Quality Funds at Lower Rates and reduce your Overall Cost of
Purchase8.
Continue to have a Advisor who will Hand Hold
till you reach your Goal.
9. No Pain No Gain is definitely true for Wealth Creation, especially Equities.
10. Falls are an Opportunity. Profit from it. In fact, you should pray for the Markets to fall if your Goals are far.
Equity is not to get rich fast. It is just that equity compounds wealth at a higher rate than other assets. Be ready to get rich slowly.
Also go through some of my previous articles on this Fluctuation Subject which I have dealt with
https://www.goodfundsadvisor.in/search?q=fall
https://www.goodfundsadvisor.in/search?q=fall
