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Salil Dhawan shares his stock market wisdom as 2017 is all set to ring out.
Illustration: Uttam Ghosh/Rediff.com
The year-end festive season is on and we all are busy contemplating how the year 2017 has turned out to be for each one of us (hits/misses, lost/grabbed opportunities) and what in the future we can do to make the year 2018 even better.
Doing a year-end evaluation -- whether it's on a personal, professional, financial front -- is always a sensible thing to do.
It helps us introspect the past, take the learnings, plan for the future milestones, make minor corrections if required and broadly make sure that we are on the right path to achieve our long-term goals personally, professionally as well as financially.
A reality check is always worth it!
On the financial front, it is always important to evaluate if your investments are at a place to meet your immediate, short, medium and long-term commitments.
Make sure you have a contingency fund in place, have an adequate life cover in the form of term insurance with accident/critical illness cover, adequate medical insurance (in addition to what you get from employer), your tax saving investments are taken care of, your long-term goals such as retirement, child education, and marriage to name a few are on track and there is not even a single rupee invested in unproductive assets giving meagre returns.
All the bank accounts which are dormant are closed, contact details and nominations are updated on each of your investments, surrender of policies which you think are ineffective to achieve your goals is taken care of.
All this may have been repeatedly mentioned at various personal finance Web sites and there's a reason for it.
We need to make sure, as part of our financial planning exercise, that you have all these points covered and have taken care of them without fail.
Every year you always learn/unlearn few things based on your experiences with equity markets. Based on my experience this year, I am sharing few of my learnings from the last year with the readers:
1. Be consistent and patient with your investments
2017 has been a phenomenal year for the equity markets with the Sensex touching 34K and Nifty hovering around 10,500 levels.
In addition to the frontline indices, small and mid-caps have in particular hogged the limelight by delivering phenomenal returns over the last one year. This is again a testimony of the fact that we can't time the market and we should also not try that ever.
What we can time is consistency in our investment philosophy and stay invested for the long term.
Investors who kept faith in mutual funds or good quality stocks and have been investing for years together consistently are a happier lot today seeing their portfolio returns swell. They deserve it outright.
Learning
Be consistent with your investments and stay invested for the long term.
SIP in consistent equity mutual funds and buying and holding on to quality stocks for years together will always remain a preferred bet.
Keep a track of the results every quarter but don't sell too soon so as to make money but not create wealth in the process.
2. Buying consistently and holding on to quality stocks maybe boring but is very effective
Quality stocks delivering for decades have continued to deliver consistently this year too with a relatively low risk.
In spite of high P/E argument and trading at rich valuations, these wealth creators continue to surge upwards on the back of consistency in earnings in a difficult environment, good growth outlook, strong and transparent balance sheets and an excellent management.
There can be different leaders of each bull run but excellent businesses delivering consistent earnings will always remain excellent compounding stories, you buy it or not.
Learning
Quality businesses never go out of fashion. We all know them for years but seldom invest in them as our mind is always looking for multi-baggers.
3. Large caps can also create or destroy wealth
Quite a few Sensex constituents had a forgettable year from the stock market returns perspective while on the flip side few had a great run.
The market always rewards steady performers and if a steady performer's earnings and growth outlook deteriorates, you need to switch out as markets will punish it badly, irrespective of it being a large-cap, mid-cap, small-cap or a micro-cap stock.
You need to make sure that an earnings deterioration is something which is due to external factors or company-specific factors.
We should track our investments regularly and don't shy away from switching out in case of company fundamentals deteriorates.
Learning
Notion of large-cap stocks can't generate or destroy wealth is a myth
4. Markets are supreme and always factor in future growth early
Small and mid-cap equity funds had a phenomenal run this year and market experts have been fretting about high valuations in these fund categories. However, the market is not ready as yet to oblige with a correction.
Though every high can be followed with a correction, investors with the clarity of investment strategy and investing consistently for years together in a diversified portfolio will reap rich dividends in years to come, given that they add and hold on to their investments regularly and monitor them consistently.
Learning
Don't copy anyone's investment strategy. Have your own and have conviction in it.
Markets are supreme wherein even a newbie can create enormous wealth and an expert with years of experience can lose big time.
Markets always try to factor in future growth or deterioration in growth early and stock prices may reflect accordingly.
5. Observe things around you to be a good stock picker
The consumption-oriented theme has been a big theme for 2017.
Either it's an Indian car maker or a big NBFC in consumer discretionary space or a retail chain we visit almost every weekend, all have been great investment stories of the year 2017.
Best investment idea will be very much around you. You just need to observe keenly things around you.
There have quite a lot multi-bagger stories around you in consumer and banking/financials space which you have been associated for years.
You just never thought of investing in them. Look around you again.
Learning
Finding a multi-bagger is just not about analysis of a company earnings, business model, valuations etc. You need to be a keen observer too.
6. Don't wait for a correction to start your SIPs
After interacting with a lot of investors over the last one year, most of them who were due to start their investments late last year (2016), are still sitting on the sidelines. They are still anticipating a big market correction before they start investing via SIPs.
They delayed it first due to demonetisation; then GST, then the Korean threat of a war, then waiting for the Gujarat results.
In all this process, the market went up close to 27 per cent and they are still to invest a single rupee in equity markets.
This may be a flawed strategy as SIP anyways average out your costs over a period of time.
Waiting for a correction is as good as trying to time the market.
Learning
Your investments should be dictated by your goals and not market index levels.
The ,ore you wait, the more you will lose the power of compounding.
Start your SIP as soon as develop conviction in them.
We all will make mistakes or correct moves in the equity markets but we should make sure we keep learning from the success and more importantly from loss-making stories and end up achieving all our long-term goals.
Markets never move in a straight line and we must make sure that we don't panic in case market tanks and don't stop our SIPs.
Sterner test of investors will come during the next big market correction and we must hold on to our SIPs.
However, investment thesis never changes and the market rewards good businesses with great management, good growth outlook companies with strong balance sheets.
Inefficient companies can be good trading bets, but not long-term stocks to hold.
I hope that investors will keep their SIPs on even if there is a correction in the year 2018 and don't switch out.
Investors should have stocks that compound steadily also in their portfolio, in addition to looking out for new growth stories.
Investing consistently and for long-term in good quality, businesses is the key to wealth creation.
It's not that difficult to find a compounding story, just observe things more keenly you will get to know.
All the very best for 2018!
Please do share your experiences and key learnings from your investment strategies in the comments section below with our readers so that all can benefit from it.
Disclaimer: This article is only meant for investor education purposes. This article is based on my experience with equity investing. There is no recommendation here for any financial product.
Please consult your financial advisor before taking any financial decision.
Mutual fund investments are subject to market risks; read all scheme-related documents carefully before investing.
Kind courtesy: investment-mantra.co.in