Saurabh Gupta, Founder, Sampann
[PC: Investment Unblocked]
The best way to measure your investing success is not by whether you're beating the market but by whether you've put in place a financial plan and a behavioural discipline that are likely to get you where you want to go. – Benjamin Graham
Like you, I also wanted to triple my money in an year. I also thought it would be easy finding multi-baggers and exit when my investments have increased multi-fold. Opportunities are out there waiting for me to pick up and become a millionaire (in dollars, of course). I had never been so wrong in my life and had to live with hardest of decisions these past 4 years, constantly anxious, checking my phone on every market opening and closing bell!
What I described above is the life of most active investors and traders. The alternative to this is much easier, and I am sharing with you the most important lessons I learned before talking about it towards the end.
Four key takeaways
1: Stock investing is not for everyone
I consider myself a rational person. Having practised behavioural economic lessons from Daniel Kahnemann, and having read numerous other literature related to human cognitive biases, I still find it hard to decide whether to:
wait or buy a security even if it is at its all time high because it is all the hype?
stay in the market or sell at the first signal of weakness?
keep hoping for a better performance having already booked decent profits?
Although answers to these questions are obvious (yes, you guessed it correctly, answer if no for all of these), sometimes my emotions and excitement gets the best of me. I listed only 3 occurrences of the kind of decisions active investors face, while in fact the challenges are numerous.
Following is a short version of my last 4 year experience investing in common stocks:
Started investing in US market when it fell by more than 30% when pandemic started: Good decision
Bought overpriced stocks due to market hype: Bad decision
Did not sell my holdings during prolonged market weakness from 2021-22. Lost all my gains and barely broke even: Bad decision
Stuck with the volatility during upward correction: Good decision
Entry and exit decisions are hard and best left to experts who have knowledge, experience and temperament to manage risk and reward. Not everyone can be a good investor, and it is ok to accept it. God has endowed us all with unique superpowers and aptitude for market investing may
not be one of those.
2. Maintain arms length distance from short term trading
I even tried my hands at stock trading for a while to generate side income. Being a rational person as I am, I read a popular book titled How to Day Trade for a Living, and started recording my performance with a trading simulator. Had good days and bad days, but after few weeks, my P&L statement added up to 0 (well almost!), excluding the brokerage I paid for each trade I made. It did hurt, but after a while I realised that almost 90% of retail traders burn their hands playing with trading fire.
Here is a quick snapshot of SEBI data stating the same.
For most people, trading is synonymous to gambling, and the power is within oneself to stay away from this vice.
3: Clearly segregate insurance and investments
I have insurance: Term insurance, Health insurance, ULIPs and Endowment plans. Do I need all this insurance? No. Why do I have it? Because I did not know better. I was earning well at the time and did not have time or knowledge to invest in better instruments. Due to my ignorance, I ended up with investments for which I have to pay premium for 15 years, yield returns not even able to beat inflation, and without any flexibility to pause or stop premium payments. Protecting your life is important, but it should be methodical and limit itself to pure insurance instruments like term and health insurance. Anything beyond is just not worth it.
Here is a demonstration of performance comparison between insurance cum investment schemes vs combining term insurance with equity mutual funds. This data is a bit dated, but the story it tells is compelling. Do not mix insurance and investments!
4: Systematic investing to the rescue
Ok, so I tried timing the market, day trading, and insurance schemes. There was one hidden gem in my portfolio which I underestimated at first, but was ultimate saviour at the end. It was SIP in a mutual fund. I had been paying nominal SIPs in 5 different funds which was automatically deducted but which I never cared to appreciate. But it came out at the top when I needed funds to buy a house and I booked a solid gain of 50+% on the portfolio when I redeemed those holdings within a period of 3 years.
Scholars and philosophers have contemplated the purpose of life from as early as the beginning of time. For simpletons like us, I think it can be simplified to living a happy and content life, where material and mental bondages do not hold us back from fulfilment of our innermost desires. Creating a purpose based financial plan is the alternative to all the ruckus I described earlier.
In conclusion, adding purpose to your investments inculcates necessary discipline to stay invested for long and remain disciplined even if Mr. Market shows up with offers that you cannot refuse. More generally called Goal Based Investing, is the alternative to sleepless nights and worrisome days.
P.S. : Opinions expressed in this article are my own and derived from general experiences of people that I know and respect. All differing opinions are welcome!
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