Is Your fund is under performing?
Is Your friend’s portfolio is doing better than you?
Do you feel like Wanting to switch some funds
Do you feel like Wanting go for an entirely another asset class altogether? Maybe Gold?
You have good amount of cash to invest? You Do not want to miss the rally?
It takes character to sit there and do nothing. I didn’t get to where I am by going after mediocre opportunities.
─ Charlie Munger
Remember, often…. the itch to take some action affects most investors whenever there is volatility in the markets and when a risk event happens (like the present COVID).
And every delay in taking action increases the bouts of excitement / frustration.
And then there is this factor of FOMO (The Fear Of
Never let Greed / Fear takeover your behavior. Its always good to take a decision rationally after weighing all the pros and cons.
Before going ahead, you are advised to go
through this article so that you make a BETTER Decision.
THE SHEEP’s ITCH
There was this Sheep which had the bad habit of always
rubbing its neck against wall, tree, or pole to which it was tied to clear its ITCH.
One day its Owner tied the sheep to a wooden Pole which was placed horizontally.
The sheep with its bad habit of rubbing, could not find any object to rub its neck and started getting restless
To its luck (?), it found a sword hanging before it.
The Sheep, gleefully, stretched out its neck to relieve its itching.
And yes, as you guessed, the Sheep’s neck slowly started getting cut and blood started oozing out.
The Sheep was enjoying the rub as it gave great pleasure.
After few moments, it started feeling pain in the neck and was horrified to find blood oozing out.
It started bleeding and kicking around to escape itself but there was no one around to help it out.
And by the time, the Sheep’s owner came back, the Sheep had collapsed and died.
What’s the connection between a Investment World and the Sheep Analogy?..........The ITCH to be ACTIVE! Its in being inactive that TRUE WEALTH is created.
Where is the need to sell/buy/switch if the job is getting
Yes. Portfolio Reviews are absolutely necessary, but changes are not !!
Unless the fund performance has deviated too much or there is another top class alternative….no need to do the tinkering.
Yes. Sometimes the fund may be under-performing but it makes sense to analyze the reasons behind the under-performance.
Are the peers doing better than this fund?
Has there been a continuous under-performance?
Has the fund changed its mandate itself?
There could be a huge list of reliable and valid reasons why this particular fund is not performing as per expectations.
You are better off looking at the entire portfolio with a holistic approach than just focusing on 1 or 2 under-performing fund.
Your Wealth Journey would see lots of variation and go
through troublesome periods. Invariably,
there are going to be couple of years of huge gains, and there could be more
than 4-5 years of flattish / negative growth.
What matters is whether your portfolio is on track to achieve the goals intended
Being ACTIVE and taking ACTION for the sake of taking action is definitely not the answer.
Sometimes, the best thing would be to JUST DO NOTHING.
Yes…its very difficult to convince yourself NOT TO DO ANYTHING when everyone around you is hyper active. You will definitely going to see the effects of the FOMO (Fear Of Missing Out).
But, as written in my book DON’T RETIRE RICH, you are better focusing on JOMO (Joy Of Missing Out) rather than FOMO.
And please do not think I am asking you to be
complacent. Not at all.
You are being encouraged to take RATIONAL decision wherein you analyse the situation in a relaxed way and without being in a hurry.
CORRECTIONS ARE TEMPORARY
Do not act in Panic or Excitement.
THE HISTORY OF BIG FALLS & THE BIGGER BOUNCE BACKS :
Year 1992 - Sensex down by 54% in a year and up by 127% in next 1.5 yrs.
Year 1996 - 40% down in 4 years and 115% in next year
Year 2000 - 56% down in my 1.5 years and 138% up next 2.5 years.
Year 2008 - 61% down in 1 year and 157% up in next 1.5 years
Year 2010 - 28% down in 1 year and 96% up in next 3 years
Year 2015 - 22.3% down in 1 Year and 25% up in next 7 months
Do not average Consistently under-performing funds.
There is no point in averaging an under-performer, especially if the future does not look rosy enough and there are good alternatives available.
This is more applicable to the Sector / Thematic funds as these types of funds requires constant monitoring and actually do require regular taking of ACTION!
As long as the fund is aligned to your goals and progressing as per schedule, it shouldn’t bother you if the markets are running away or if other funds which is not in your portfolio are giving mega returns.
BORING IS BEST WHEN IT COMES TO WEALTH CREATION.
BEING AGILE and looking out for opportunities and to
prevent wealth destruction is definitely on but BEING OVERACTIVE for the sake
of being active is a STRICT NO-NO. Avoid
overthinking and overanalysing.
DO REMEMBER :
Please DO REMEMBER that SELLER is selling because he feels that fund (and the underlying Stock) will not Go up Further. At the SAME TIME BUYER feels that Stock is likely to go up
MOVEMENT of Stock
Market is result of COLLECTIVE sychological Behaviour of THOUSANDS of
Investors(SELLERS & BUYERS).
Movement in Stock Markets and Asset Classes is a result of Collective Phychological Behaviour of lakhs of Buyers and Investors
Don’t try to
be either overcautious or over adventurous.
Do not SELL at funds without proper analysis and turn your paper loss into permanent loss
And at the same time, do not jump and start ramping equity by putting your entire 100% at one go.
Stick to Asset
go overboard on debt or equity or any asset class for that matter.
Its apt to take an example given by BRAIN TRACY
When an airplane leaves Chicago for Los Angeles, it is off course 99 percent of the time. This is normal and natural and to be expected. The pilot makes continual course corrections, a little to the north, a little to the south. The pilot continually adjusts altitude and throttle. And sure enough, several hours later, the plane touches down at exactly the time predicted when it first became airborne upon leaving Chicago. The entire journey has been a process of approximations and course adjustments
Apt adjustments wherever required is an absolute necessity. But trying to be busy in Wealth Creation is not the way to go.
A person taking a photo-copy (xerox) of a 10,000 page book definitely looks busy and for a pretty long time too.
WHAT TO DO THEN ?
1. Stick to Basics......to your Asset Allocation
2. Focus on Your Goals.
Do NOT convert your Paper Loss into Permanent Real Loss
“ALL BEAR MARKETS HAVE ONE THING IN COMMON…….THEY END” !!
Make your roots strong.
Ensure that you have a Super Strong Portfolio capable of weathering all storms and having sufficient exposure to all types of asset classes with the right percentages and allocation. If the roots are strong, the need to take ACTION seldom arises.
But, do note, regular Portfolio review and monitoring is a definite YES.
The best thing to do from a money point of view in a prolonged bear market is just NOT ACT.
Big strategic decisions shouldn’t be made in the middle of a storm, your mind is too clouded often to think straight.
- GOLD prices fall, their first reaction is....GOOD.....Now I can buy more
- When Land Prices fall, their reaction is ….CHALEGA....I AM HOLDING FOR LONG TERM
Has my money gone??
Let me Take out whatever is left!!
but, the same investor, will not even blink when it comes to selling Equities even at a loss!!
DO NOT ALLOW YOUR NOTIONAL LOSS TO TURN INTO PERMANENT LOSS!!
Finally, I leave you with the thought and that is .....
BETTER TO TAKE A DELAYED WISE DECISION THAN TAKING A EARLY WRONG DECISION
All the best,
Author, DON'T RETIRE RICH
Excellent eye opening Article for all.ReplyDelete