Consistency is the Key to Equity Investing

Hemant Rustagi
Chief Executive Officer, Wiseinvest Pvt Ltd.

Equity has proved its worth for investors looking to stay ahead of inflation over the longer term. However, not every equity investor benefits from the true potential of this wonderful asset class. That’s because they are not consistent with their investment process through their defined time horizon. Many investors get swayed and make abrupt investment decisions whenever the stock market turns volatile. It is amazing to see how their mindset changes with the index levels. No wonder, investors who abandon equities during the downturn rush to buy as the markets start doing well. Under both these situations, their decisions are triggered by either panic or greed and not by their investment strategy.

Needless to say, the results are often disappointing. Then, there are investors who believe that ‘timing the market’ is the best strategy. While most of us have heard the cliché ‘buy low and sell high’, it is very difficult to predict the right time to sell or buy. As it is, to many investors, stock markets seem pretty mysterious and they are often unsure about what to do in different market conditions. While there is no sure-shot investment strategy, continuity in the investment process can prove to be quite effective as it takes care of most of the imperfections of the market place. Many investors face the dilemma of whether to invest as a lump sum or through SIP

Since it is difficult to predict the market movement in the short term, a combination of lump sum and systematic investing can ensure much better result. In our country, there are a large number of investors who invest in mutual fund but do not invest through SIP. Then, there are those who have remained committed to invest systematically but failed to increase their investment amount in line with rise in their income. Increasing SIP amount every year can make a huge difference to what an investor gets to accumulate over the longer term horizon. Asset allocation is another strategy that can minimise the impact of extreme movements in the stock markets.

"Asset allocation strategy allows you to build a portfolio that has the ability to match your investment temperament."

An important feature of an asset allocation strategy is that it not only takes into account how different asset classes tend to behave but also how you, as an investor, tend to behave. Asset allocation strategy allows you to build a portfolio that has the ability to match your investment temperament. It also helps an investor ascertain what can be expected in terms of returns and how much risk would have to be taken in achieving it. In the absence of asset allocation, one may end up allocating aggressively to equities in a rising market and then moving out completely when the market goes down. Unfortunately, many investors do just this and ‘capitulate’ near the bottom of the market downturn. 

The result can be much worse than investing conservatively and sticking with it. Therefore, it is important to focus on what one needs rather than what one wants. Mutual funds can be an ideal way of investing in equities especially for those who don’t have the wherewithal and expertise to invest directly. While a disciplined approach of investing in mutual funds takes away the speculative element from the investment strategy, the expertise of the professional fund managers helps investments appreciate steadily over time, overcoming most temporary setbacks. No doubt, investing in a tough investment environment like the one being witnessed presently can be quite a challenge. Therefore, determining and maintaining the right level of risk tolerance and remaining committed to the defined time horizon can ensure investment success.