By Ambareesh Baliga
One of the golden rules of the market is “Never time the Market”. The most popular method of investing among retail investors is to invest via SIPs – And there is data to prove this – where a SIP started at the top of a market in 2008 vis-à-vis one which was started at the low of the market in 2009 has delivered a XIRR with only a marginal difference. So in the long term it doesn’t really matter when you start investing – especially if it’s an index fund or a well managed active fund.
However, it’s also a fact that investing in stock markets is a psychological game. The investors’ behavioural pattern determines the returns. We always have a 20/20 vision when we look back at the opportunities available but it’s important to gauge how we would have behaved in the midst of a said situation. Someone who had invested at the peak in January 2008 at around Nifty ~6350 would have witnessed the portfolio erode 57 pct by December 2008 at Nifty ~2750.
Individual stocks would have possibly fallen more. How many investors would have had the guts to hold the portfolio or continue with their SIPs in this environment? The first reaction would have been to stop SIPs as it would be seen as ‘putting good money after bad’. And when the markets recovered in 2009 and 2010, most of such investors would have looked to book out, glad that they are getting their capital back.
Among those who would have held on an investment for the next 15 years would mostly be those lazy investors who bought and forgot about it. Those who would have held the portfolio with confidence and probably added more over a period of time would be very few.
On the other hand, any investor who had bought in January 2009 at Nifty ~2650 would have had a decently smooth ride to the then peak of Nifty ~6200 in January 2011. Here again, how many could resist not booking profits on the way up. When everybody around was staring at recovering losses from the portfolio, if one is getting more than 100 pct returns in 2 years, it’s quite natural that most would book out.
Investment strategy is person centric – what works for one, need not work for somebody else. So every investor needs to figure out which strategy works best and this can be realised only after making a few mistakes, hopefully not expensive ones.
However, the way I would look at the current scenario is with a lot of caution. We had a superb CY2023, Nifty gaining more than 20 pct (30 pct from the low) for the year with more than 650 multibaggers (Out of ~2500 regularly traded stocks excluding penny stocks), more than 50 multibaggers in Nifty 500, thus valuations across has become expensive. At this stage of the market, for a retail investor it would be prudent to miss an opportunity than to buy and stare at possible losses.
I would suggest fresh investment only if you are capable of bearing the pain, in case we witness a sharp correction. The ability to bear the pain is enhanced if you have a decent understanding of the stocks you have invested in and that would give confidence to buy more on a correction – assuming valuations continue to be attractive in the changed scenario (one should avoid averaging just because the stock has corrected).
Another important factor which can help in mitigating the pain is ample liquidity. If one is not fully invested, the correction provides an opportunity to top up the portfolio. So unless you are able to check these boxes, I would suggest to stay on the side-lines and wait for a meaningful correction to buy.
Invest only to the extent that it doesn’t rob you of a good night’s sleep.
(Ambareesh Baliga, is a smallcase Manager. Views expressed are author’s own. Please consult your financial advisor before investing.)