Behavioural Traits Required By An Equity Investor

When it comes to investing, one of the important aspects which decide how successful our investments will be is our own behaviour. Sometimes, unintentionally, we end up hurting our own wealth creation prospects by falling into the trap of greed and fear. As a result, most financial problems are behavioural in nature.

Being Invested for Long Matters — It is fairly straight forward that a long-term asset class requires a longterm mind set. For any equity investor, it is important to understand that structurally equity is a long-term asset class. Going against the very nature of it with a short-term investment horizon will only result in sub-optimal investment experience. History has time and again shown that s\tock prices will follow their earnings over the long term. If you wish to invest `10 lakhs into equities, it is important to invest the amount with a 10-year horizon and not with a three-year horizon. Time horizon matters more than the quantum of investment in long-term investing. 

Different Styles, Different Performance Cycles — Different types or styles of funds will perform in different market conditions. There will be instances where a fund may not perform well for a few years at a stretch. For example, the value style has been underperforming for several years in a row. But post-pandemic, the value style has made a comeback and delivered double-digit returns. For staying put through the downtime, what helps an investor navigate through the turbulence is his mindset towards investments. 

Use SIP and STP Effectively — If you are an investor who is uneasy at the first signs of market volatility, then use tools such as SIP and STP to invest into equities. This will help you ride market volatility in an effective manner. Furthermore, when the market corrects, use such opportunities to make lump sum investment or opportunistic SIP apart from regular SIP. The reality is that in a bull market most are blind to risks and in a bear market most are blind to opportunities. All of this is possible only if the investment horizon is 10-20 years. Longer the horizon, longer is the benefit of compounding.

Learn to Avoid Noise — Most of the markets corrections tend to be triggered by a macro event resulting in widespread fear among market participants. History has shown that such times present a great investment opportunity which is seldom used. In the short term, there will always be noise around some development over the other. So, it is important to stay away from such noise be it from social media, news or from any other source. 

MF a Wise Option — If you do not understand stock fundamentals, then opt for investments via mutual funds. Mutual funds offer a simplistic way of investing wherein a professional fund manager will invest on your behalf. There is no tax incurred by the investor when the fund manager buys or sells in a portfolio. The only time an investor will pay tax is when he sells his mutual fund holdings. 

Curated Portfolio Helps — When putting together a portfolio, it is important to have just a handful of funds rather than investing in too many funds. Here, an advisor will help you select a few but right funds for your financial goal requirements.

Conclusion
If you an investor who is unnerved by market volatility, invest in a scheme such as the balanced advantage. Here, the corpus will be invested across equity and debt in a counter-cyclical manner, thereby ensuring that the exposure towards equities is calibrated in nature. Also, the scheme will keep you away from buying high and selling low – the often made mistakes by investors. Over long term, data shows that a patient investor can enjoy almost equity-like returns despite lower allocation to equities.

This is achieved by judicious toggling between equity and debt asset classes. So, instead of getting carried away by emotional reactions, it would be wiser to stay invested with a long-term view and benefit from compounding. To conclude, for a successful investment journey what is required is the right mindset in terms of behaviour. If you want to get better results, changing yourself is more important than changing investments. And finally, discipline towards being invested with a longer time horizon is most important.

■ Email : sanjay@induscapital.in