Investing is a long-term game, don't freak out over short-term noise

Personal finance
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Whenever there’s a sideways market or a small dip in the market, investors freak out. A few thoughts.

There’s always a reason to sell.

If you listen to the news, there’s always a reason to sell. But if you took the news seriously, you’d always be 100% in cash.

  • The current dip from the peak is 8–10%, but we’ve seen way worse in 2000, 2008, and 2020.

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  • If equities always went up, they wouldn’t be risky, and you would have terrible returns. In equity investing, volatility is the price you pay for higher expected returns.

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Investors get scared of volatility for a few reasons.

1. Wrong expectations.

Our most recent experiences influence our expectations. If you start investing in a bull market, you tend to be more bullish and have higher return expectations. Markets don’t always go up.

2. Focusing on the short term.

In the last 2 years, the SIP returns of Nifty 50 has just been about 3.5%. But over the past 20 years, the SIP returns have been about 13–14%.

You need a very long horizon to make returns in equities. 5–10 years isn’t long-term—it’s noise!

3. Expect less, save more

  • Over the long term, is 12%+ guaranteed? No! You don’t know what the returns will be. This is why it’s important to have reasonable expectations. If the returns exceed your expectations, it’s a bonus.

https://twitter.com/karthikrangappa/status/1642768472537980929?s=20

  • The longer your investing horizon, the lower the odds of you having negative returns. Over the long run, you will do well if Indian companies do well and grow their earnings and profitability. Being bullish on Indian equities is a bet on corporate India.

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4. Get your asset allocation right

A subpar portfolio you can stick with is better than a perfect portfolio you can’t.

Diversify your portfolio with these 3 asset classes:

  • Equities - For growth

  • Bonds - For stability and income

  • Gold - Hedge against inflation, apocalypse, etc.

5. Get out of your own way

In investing, your biggest enemy is your own behavior. Dealing with volatility, seeing your portfolio in red, chasing hot funds, and & resisting the urge to tinker with your portfolio is nightmarishly hard.

But if you want to reach your long-term goals, you’ll have to fight every urge to do silly things. Good investing outcomes require discipline over the long term. So you’ll have to figure out a way to stop being your own enemy.

6. Have a plan

When you have a plan, it’s easy to deal with things. You don’t have to make a comprehensive plan, either. Even a simple written plan with your goals, your investment strategy, your beliefs, and your strategy to deal with uncertainty will help you be disciplined.

7. It’s all about the basics

Personal finance is all about getting the basics right. It’s not rocket science, and you don’t need a Ph.D. All you need to do is get these key things right.

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No matter how many times you ask investors to not freak out over short term, most of them panic when market falls.
Everywhere people are talking about how badly market is performing. Come on, It’s just 8 to 10 percent below ATH. May be they have invested in micro caps and penny stocks that their portfolio is down 30 to 40 percent.
When one invests in quality business, volatility should be least of his concern. People go for volatile stocks in search of high returns, and then complain when market falls.
Anyways. Good post. Feel good to hear from people who have similar views about investing. :metal:t2::metal:t2:

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With investing we make money only if the stock or market in general moves up. With trading we can make money if the stock or market in general goes up, down or stays flat.

A stock like Reliance was a dead dodo for about a decade before it decided to launch.

So I prefer trading over investment anyday. Whatever market does there is an opportunity to make money. Also the cash is liquid without any lock in pressure.

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It is personal finance, whatever the product, so it depends on why one is investing. If people are investing for short term or new to the market, short term fall will bother them, after they are informed, some may accept the volatility as part of the market movement, some may look for other non volatile products. So many choices available.

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And if you go wrong, you will only go down. I feel there is no comparison between the two. For trading you need to be skilled. If I take 100 traders at least 90 would have lost money. But if I pick 100 investors, 90 of them if not all, have made more money than FD returns.
Trading has higher risk and hence higher return.

If one holds reliance for 5 years am sure it will still give you CAGR of 10 percent even if I consider investing at its previous ATH.

Because you must have made good money in trading. But many fail. It’s like you are comparing business with salaried job. Salaried job is much safer than a business.

Having said all of this, I am both, a trader and an investor. And if you ask me which has given me more money, then obviously it’s trading.

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Same with investing + we also go down with market…

Investing too.

90% investors don’t make more than FD. First of all delivery volume in exchange every day would be close to 1% of total volume. The number of people out of that who buy and hold for a very long time would be miniscule too. The same greed and fear that drives trading drives investing (if we can call short term delivery traders investors).

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See reliance from 2007 to 2017. When reliance lay flat for a decade no body made any returns and not many had the patience to hold it for over a decade. The best of stocks can go through this kind of cycle. I doubt there is a significant % who can stay persistent for that long a period of time via the investing route and hence turn out to be good investors.

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Yes I continue to trade because I have made money from trading. Same goes with investing. Unless some one sees consistent investment portfolio appreciation they are unlikely to keep investing too. If we are in the stock market the assurance of regular returns is way inferior to a salaried job - investing or trading.

This is my point. Approach it the right way we are likely to make more money trading than investing.

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In investing you don’t book loss unless fundamentals change. There is no concept of stop loss.

No boss. Totally disagree on this. Even somebody who has absolutely no knowledge can invest via mutual funds and make positive return. For trading you have to be very good.

For me investor is one who buys and forgets for 20 years. He believes in his business.
If you have to start a new business, then do you sell when you have very good sales and you are growing at a good rate? No. U continue with the business. You have few bad quarters you still continue. Investing is when you wanna be part of that business. You are the shareholder. You are the owner of that business. Think 20 years.

In my definition of investors, these are not included.

Why not hold it till 2027? Why didn’t you try from 1990. It’s all about long run. Even HUL was at 400 for 10 years. Next 2 years it went to 2k.

I agree. But trading is not for everyone. Trading is difficult. Trading is riskier. Trading is rewarding.

Covid time my portfolio went down by 50 percent. I could literally see my networth fall my 50 percent. A trader would have triggered his SL way before that. I held on to it. In fact I added more at those levels. All that I knew was if my assets became 0 then even our entire economy would collapse. Because I have reliance Sbi hdfc HUL itc Asian paints and many more large caps. If my portfolio has to become zero all of these companies have to become 0. Today my portfolio is at least 80 percent up. Now am comfortable. A 20 percent fall in market doesn’t bother me.

Do not get me wrong. All that I am saying is investing is easier than trading. If you are making money in trading then you are excellent in it.
Connecting it in my own field. You can be an accountant or you can be an auditor. Auditor does one weeks work and gets same money as what accountant gets for 1 years work. But is it that easy to be an auditor?

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I will definitely visit a temple nearby and pray to god to “show what an aggressive bear market looks like”

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God already showed that in 2020 and it seems everyone now believes that god will not strike again so soon.

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2020 was just a curtain raiser !

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I suspect chance of stressful markets too. But nobody knows what will happen.
For long term investors, all of this is best ignored. We may never get any crash, this long range could be just some consolidation and it could set up a good impulse rally. Usually, this happens after flushing out panicking people first who are looking too closely at their investments. And even if it crashes, eventually it will recover and move on.
But crashes can be very good time to add money for next few years.

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No stop loss but negative portfolio returns are very much possible in investing. All other things equal in investing we make money when market goes up. With trading it is possible to find profitable opportunities in up, down or flat or volatile markets.

I was comparing some one who is directly investing in stocks to some one who is directly trading. Mutual fund is a different story.

My point was not many are investors if we apply the 20 Yr holding period rule. Most of the retail don’t have the patience to wait 20 Yrs. Yes if someone were to hold that long, odds of success with a good business stock is higher.

Get you now … :+1:

While one can hold as long as he / she wants, not many are wired to do so which was my point.

Systematic Auto trading without much mental or physical effort is what makes it easy for me. Since it is a process that can be replicated it is easy for others too.

I know ordinary novice people trading systematically in auto mode replicating my performance which is why I say it is easier than direct equity investing. Not many understand the numbers or know how to value a business or have the patience or skill to assimilate information and make sense of it. But more people can click and drag a mouse, cut copy and paste, work with a browser which are typically the things that a systematic auto trader has to do.

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Investing is easier than trading. However, lot of investors lost their money or underperformed index in blue chips also. Stocks such as DLF, Suzlon, Reliance Power, Reliance Communication, Yes Bank come to mind immediately.
The trick is to hold on to those big winners in investing which is not possible in trading. This is elusive for most investors in direct equity. Holding on to NiftyBees is far easier and less risky.

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You must have developed a system which is working. That’s why it sounds easy to you. It may not be the same for somebody else. Srk may say you just have to just be yourself and act and you get 30crores for a film, but we can’t do that.

If you are talking about replicating or copying trade, then that’s not trading for me. Technically it still might be but he isn’t using his skills.

Okay I agree stock picking is also not that easy. I have mentioned in many times before that’s it’s very difficult to outperform index. For me nifty is the best stock. But if I consider the risk parameter, highest risk coming first

  1. Trading
  2. Stock investing
  3. Active mutual funds
  4. Passive mutual funds.
  5. Debt funds

Again opinions differ. This is my view and am sure we can go on for next 10 days talking on this.
:hugs:

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Some one wants to drive a car he can either design and manufacture a car of his own and then drive or he can buy a car from a dealer and then drive. Either way he is driving a car. So if I created a system and some body else is using it for trading he is still trading IMO.

:sweat_smile: Yes. I guess we have expressed our different takes on the matter and so we can let the matter to rest :handshake:

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Trading with edge is much better than index investing, obviously and most don’t trade/invest with edge also obviously. Having said that -

With same logic, most are not wired to deal with the uncertainty inherent in trading. Drawdowns are part of life - time and price and most people are not able to live with them. So if someone cannot hold in investing, he may also be someone who cannot hold in trading. We can easily have a higher/longer DD than past and add your own imagination to the mix, perhaps bit of higher risk than comfortable and people jump.

Yeah as long as they don’t look at the balance too closely.
And even with full automation, there are are things that cannot be fully automated and you have to be ready to manage things. Simple ex - Zerodha cancelled all my stops recently. Its rare, but can happen. Now you can keep automating all cases, but there is risk of trying to do anything in a potentially faulty error prone environment.

Just saying, that there is some trade off here too. For most people, just buy NiftyIndex + Debt + maybe Gold and forget about all ups and downs until retirement time approaches + focus on career. Mistakes happen once they start looking at adverts on how easy it all is or how someone is making x amounts of money etc.

Anyway …

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In stock market there is no certainty be it investing or trading. One must accept that higher risk to gain that higher return.

Technology is not fool proof. Automation may fail sometimes. That is known, accepted and so redundancy, contingency measures need to be built to address the same. Btw why did zerodha cancel u r stops. Any info from them ?

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Once we have edge, Risk can actually reduce a lot vs reward. So higher risk is only in that initially you don’t know if you will be able to trade successfully.

They had some issue, got resolved within 5-10 mins so was easy fix to send them back. A friend who trades options did not have any issue. I don’t have any more info than below.

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Bear markets combined with time correction is more deadly than just price correction. That’s why 2020 feels like a buying opportunity when we look at it in hindsight.

Small and Midcap investors are already having a tough time. One can only wonder what happens if there’s more pain ahead.

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Thats sure one way of looking at it.

What if 2020 fall was just a curtain raiser? Just a subtle warning :warning:

What if the actual fall is yet to come?

  • dollar peg
  • liquidity removal
  • years ahead with high interest rate
  • inflation staying above 6%
  • massive job loss
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