In the last month, the Nifty fell by 7.7%! Out of which 3.32% was just yesterday! Yesterday I wrote a short note with a few suggestions for new equity investors at such a time of carnage. In this post, I would like to expound on that.
Just as I was thinking about ways to do this, I saw an email from a Phd student addressed to the entire department: "the press conference announcing the discovery of gravitational waves is live right now on youtube". So off I went and was fortunate to watch it live.
In the 1960s, the National Science Foundation (NSA) of the USA decided to fund an experiment to detect gravitational waves. It was a huge investment - millions of dollars over decades for an experiment which no one was sure would work.
After years of toil and repeated failures, the waves were first detected in Sep. 2015. Before I describe the incredible discovery, the reason I am writing about this is because of the huge and inspirational risk the NSA took.
I can relate it to long-term equity investing. We have no guarantees that equity as an asset class would work, the short-term pain is pretty high, but yet if we hang on to our investments, with the hope and belief in our economy, maybe, just maybe, we will come out all right in the future.
Imagine two black holes (remember Gargantua - from interstellar?) which are about to merge together about 1.3 billion years ago. This was the time we had only simple cell life on Earth.
They collided with such great intensity that they gave out the energy equivalent of 50 times more than all the energy in all the stars in the universe!!! There are more stars in the universe than grains of sand on Earth!!
When they collided, ripples in space (spacetime if you know a bit of relativity) were sent out. These are gravitational waves. They will distort every object in their path by a miniscule amount.
In Sep. 2015, 1.3 billion years later, experimental mirrors at two points in the US distorted/jiggled due to these waves, just a 'touch' - to be precise by 0.000000000000000001 meters!!
This small movement can be recorded as sound! So we now have the technology to hear these waves! This is incredible precision. Not only that, these waves match predictions made by Einstein in 1915!!
Research teams toiled, building apparatus, more importantly, find ways to reduce external noise with no absolutely no hope or result in sight in decades! They worked because they believed if they tried hard enough, they will eventually be successful. They knew that if they get rid of the noise, they will reach their goals. Even though decades passed, the NSA kept the faith in such research and can hold their head up today proudly.
Contrived as it may appear to some, I see this as inspiration to continue investing in equity through market ups and down.
Dear new equity investor, please permit me to make some suggestions:
1) If you believe in the power of equity, please do not look at anything related to the market, esp. your portfolio, unless you are looking for an investment point.
2) If you are scared about what is happening, then all one can say is you cannot get good returns without enduring short-term pain. This pain can be perceived only if you check the market and is of little relevance to long-term goals.
3) If you think you cannnot keep it together during such times (which will recur from time to time), either quit equity investing and/or seek the counsel of a SEBI registered fee-only financial planner to hand-hold you.
4) Why did you invest in equity? Can you offer yourself a convincing answer?
5) If you have invested in equity only because of the noise generated in this blog, AIFW or elsewhere, you need to introspect about your strategy.
6) What is the reason for the crash? The answer is unlikely to help you become a better investor.
Note to self: Why do I invest in equity (mutual funds)?
- Because I have seen retirees struggle to make ends meet and I do not want to end up like that.
- Because I would like to able to offer a good education for my son without an education loan, if I can help it (and if he can help by studying well!)
- Because as Dave Ramsey said, I would like to be able to change the way in which my family approached money management. I am already seeing sighs of this. This is the single most holistic reason why.
I believe all this is possible only with equity as it is only asset class which has the highest potential to beat inflation even if gains are taxed.
I believe that there is a lot of room for India to grow and sooner or later it will. Our GDP will reflect that and my equity returns will reflect long-term GDP growth rates.
I invest via SIP (manually) with only one hope. The market levels after 15-20Y in India will be higher than today. I could be wrong and as is often pointed out, there could be a 'Japan' in future. Therrefore, I will not invest blindly. I will review the portfolio each year to monitor progress. I will make changes as per the need of my financial goal
Since they are decades away, I see no reason to 'act' now. Therefore, I am going to keep calm and invest on.
Hope, as they say is not a strategy. The team that detected these waves did not rely on hope, but could not have carried on without it. Same applies to equity investing. I invest with hope, but do monitor my investments - not because the market crashed, but because my goals require that -once a year. Systematically with personal benchmarks.
The only reason I have been able to invest in mutual funds for close to 8 years is because I never bothered to calculate returns until I made my own mutual fund tracker. I only calculate returns once a month before I invest. In order for me to continue investing, I need to do the same. In this day and age of non-stop social media noise, I need to do this better than I did even 2-3 years ago.
Spectacular returns are not possible without spectacular losses. If I cannot stomach losses, I will have to live with poor returns. No free lunch. Therefore, volatility will have to be tolerated, if not befriended.
Equity investing is not a risk. Not investing in equity is a risk (don't know who said that first). I do not wish to risk financial independence in old age.
So why not keep calm and learn more about gravitional waves while we leave our investments alone?! 🙂