Many people start equity investing thinking its SO easy to get rich. They consider it a free lunch.
Equity carries risk and hence you get higher return. in shorter time periods, risk looks absent completely and in some periods, risk looks more imminent.
many fools jumped into equity investing thinking following a couple of twitter handles will make them tons of money. They forgot to ask “why me” when they were making money. Advises poured in each day into junks, hope stocks and inflection points. I had even heard some idiot promising 35% CAGR. What is the cost an investor pay? They lost 30-40% of their hard earned money.
irrespective of what all these people say, buy the dip and all sham, most small caps aren’t coming back. DO NOT AVERAGE JUNK.
I repeat, most of the small caps won’t come back. you money is lost for real. More money would be lost if you don’t take action. You need to act now and act right.
Someone profit is someone’s loss. An aggregate investor can’t earn more than a market return. Given there are smart people on the street who deserve to earn disproportionately; plus brokers and advisors eat into your corpus, an aggregate investor doesn’t earn even market return. Hence an aggregate investor is a LOSER. Atleast start making average market returns first.
Everyone wants higher returns than the market. They seldom ask “WHY WOULD I GET HIGH RETURN SITTING AT HOME WITHOUT ANY EXPERTISE OR EXPERIENCE?” and why in the world will advisor make you high returns? won’t he charge you high fees for his expertise? OR why he runs an advisory when he can earn such high returns for himself?
Now that markets barely down but individual portfolios are bleeding more, people started realizing that stupid Anonymous account was doing a better job without fees to help them, warn them, caution them.
Let me highlight some key points to help you sail through equity investing
1) equity is not a free lunch. You can’t get more than what company’s earnings growth over long term. So given earnings are likely to growth 12-13% on aggregate in long term, chasing returns more than 14-15% is a FOOLISH thing. Some years will have single digits returns but some years will have returns in twenties. So longer you hold, better it is.
2) use mutual funds wisely. They are just simple products to ride equity investing along with fellow investor. it’s not a secret sauce to richness. So Never fall for the best fund. EVEN A FUND MANAGER DOESN’T KNOW HE WILL BE THE BEST PERFORMER SOME DAY. Fund manager’s aim is to avoid risk and/or generate better returns with same level of risk.
3) Don’t fall for “since inception” returns. If starting point is a market crash, CAGR looks quite high. if inception is in 2003/2013, returns are misleading as Nifty PE was less than 15-16x i.e. very low valuation. luckily even I started investing in 2003. Even my CAGR looks very HIGH since the start. Always trust people who highlight rolling returns. Offlate, DSP black rock and Motilal Oswal have started showing rolling returns.
4) Advisory is a service NOT A FRIENDSHIP. Use it wisely. Profits are shown in public domain. Losses happen in private. if someone promises high returns, ask him his strategy. Is he also venturing into private equity or distress debt. If he is investing in equity market only, given there are so many smart people competing, it impossible to earn a lot more than average market returns over 3-5years. Warren Buffett used to earn very HIGH ALPHA in initial years due to very few people practicing fundamental investing. Later his alpha fell and he admitted that its tougher for current generation to beat market by such huge margins.
5) advisor’s job is not to scare you out of investing. VERY VERY FEW humans can manage to see large fall from peak. only experts and experienced can survive that.
6) for most advisors value investing or Multibagger investing is a marketing campaign and not an investment strategy. Very very few stocks become multibagger. Since probability is low, you have to buy and hold 40-50 stocks. Since small amount is spread across many stocks, a few multibagger wouldn’t have large impact to overall portfolio. Besides there will be some which would lose 70-80%. It is better to hold 10-12 stocks in good quality companies. Outcome will be similar vs multibagger. Even if 5 turn out to be profitable, remaining 5 wouldn’t lose lot of money.
7) past returns could be an outcome of high skill or one off if he doesn’t have a style. many advisors & mf don’t have a style. They buy what is looking good today. How can you be sure that his judgement of “what’s looking good today” will turn out right everytime? Hence better to trust index funds or atleast someone who has a style. i am sure some fund/advisor from “what’s looking good today” school might showcase a stellar show and he will make headlines, but WHY should I risk my money on his intuitions? Always ask what is your style & under what condition it doesn’t work. Some styles are value, momentum. Value mostly underperforms in prolonged bull market. Momentum performs very well in prolonged bull market.
8) always invest for 5-10 y even if its ELSS. equity is not a 3 y product even if occasional 3 y returns would look very good. If you are not willing to invest for 5-10 y, prefer govt bonds or fixed deposits. Mutual funds are there to make money. They will sell crap too. So keep choices simple. Mutual funds have lobbied to make ELSS a 3 yr product when they know equity investment should be done for longer term than that.
9) mutual funds are friends with distributors, not you. So distributors will sell anything not right for you but mutual funds won’t stop that. Distributors shamelessly sold equity oriented balanced funds with dividend promise to retired people. Mutual funds didn’t stop them from doing that. Distributors sold small cap funds to you when fund managers knew they were risky & overvalued but Mutual Funds didn’t stop them (except 2-3 fund houses like black rock, Motilal & mirae that stopped accepting money). You are responsible for your money, they are “for profit” enterprise.
Equities are fun and a very good way to compound wealth. But Financial industry may have intentions not aligned to yours. You are responsible for your money. since there might be some hidden agendas/advertising I am here to caution and warn people.
Don’t follow my views, atleast start doubting others