The Best Process of
Share Investing..!
By Mr. Brijesh
Damodaran, BellWether Advisors LLP
Many investors who were
unsure about investing in equity may have been disappointed last week when the
markets BSE SENSEX) cross the 30000 mark. The disappointment would have come as
they had the cash but not the courage to invest in stocks.
1. Surge in Share
Markets..!
In the four months of
2017, the Sensex has given an absolute return of over 12% and an annualised 17%
returns in 2016-17. It is a healthy and encouraging sign for investors.
With only equity as an
asset class being in the green for the past few months, investors who could not
gather courage to participate in the rally may feel left out and regret their
decision not to invest in the equity market.
Over the years, the
Sensex has crossed several milestones and one can start investing in markets
anytime without any regret. Now, with stock prices running up, fence-sitters
may be afraid that entering the market could be tricky.
In fact, the premise of
investing based only on the price is itself incorrect. You must invest based on
the fundamentals and the investing horizon and the prospects of the investing
company.
This elementary
framework is ignored in the euphoria of rising or falling prices. In both the
cases, many a time it’s a one-way street.
Investing based on
prices and quick exit is trading and not investing. We need to be clear on
that. In 2009, between March and September, the SENSEX Delivered an absolute
return of over 92% in less than seven months.
And it was a one-way
move. Again in 2014, between January and August, the Sensex delivered an
absolute return of over 29% in less than eight months.
Now in 2017, between
January and April four months the 30-share markets barometer has already given
double-digit return.
So, what causes this
regret bias for not investing is the desire to ‘time’ the market. Again, it is
‘time in the market’, rather than ‘timing the market’ that is the key to
investing. Remember, action based on price is trading.
2. Process of share
investing..!
So, if you missed the
rally in 2009, 2014 and now again in the early part 2017, what can be done to
ensure that you do not miss the rally next time?
In fact, in the current
rally, many stocks have move up 30 to 100%. As the markets can move up further,
getting the framework right is critical. In war time, be prepared for peace and
in peace time be prepared for war.
This military adage is
also applicable for investing. After events such as Brexit, demonetisation, US
elections and their impact, the equity markets moved up this year.
Before investing, look
at the fundamentals, look at the moat, look at the promoter pedigree, the cash
flow statement and the balance sheet.
Also, make informal
enquires with the dealers of the products of the company you want to invest in.
Having an investment framework, with written rules for action is the approach.
Knee-jerk action or
timing the market can bring success intermittently. But then, for constant
hits, having a written framework is the approach.
About the author..
The writer Mr. Brijesh
Damodaran is managing partner, BellWether Advisors LLP.
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