Baby steps towards smart investing

Patience is tested several times during this journey of growth but knowing that fruits will emerge one day and will continue forever thereafter keeps your motivation intact

Written by Kartik Jhaveri | Published:May 21, 2012 3:00 am

Am I really an investor? Am I a good,star investor? Questions one must keep asking one’s own self,again and again,as our beliefs and ideologies tend to change over time but the irony is that the rules just remain the same all the time. So questioning yourself is like hitting the refresh button time and again. It’s important.

Whether we are in good times or bad it is important to do this exercise. Interestingly you are the same person but you may find that the answers you are getting with the changing times are different. This,to some extent,is influenced by your current circumstances and somewhat by the maturity and wisdom you have garnered over time but largely is ruled by the level of your understanding of investment and its management.

Sometimes it is weird but people who just don’t understand anything about finance or investment management turn out to have made huge profits whilst those who think they are experts or who believe that they know everything about investment,so called ‘gurus’; all look dwarfed by the performance of these simple John’s and David’s.

Then they get labelled as lucky or just made the right moves at the right time etc. But there is no better way to prove that truth actually can be stranger than fiction. These people probably did not know the “F” of finance or the “M” of money but understood some simple tenets. Buy low sell high. Don’t be too greedy. Don’t invest on borrowed money. Invest with a long time frame. Equity and real estate are the best asset classes etc. There is nothing so special about these statements but if followed in totality they tend to work wonders. It is not that they go wrong but they understand that calculated risk is something that you must take and you unfortunately do not have a choice if you wish to create wealth. So what’s the way forward?

You may watch TV,read the papers,work on tips,look out for the best deals but never forget the simple financial tenets. This is something they do just right. They maintain a financial discipline. They don’t overspend,invest all the time,and invest across assets,invest only in those assets that they understand. These financial disciplines also include the understanding that anything which gives a return less than or equal to inflation is a bad idea. Learn and find out more and keep an open mind all the time.

Majority of the people don’t understand these or think that these are such ordinary things and it is almost like; it is below their dignity to do such simple things. They like complex things like hedging,derivatives,ULIPs etc. Then these people are shocked to see the rising prices,shrinking retirement savings,failed investments and plethora of bad decisions; and the shocks keep coming in all the time all through life and the worse shock comes when 50’s start approaching.

Good old David’s and John’s understand the concept of risk somewhat and that it is inherent in the process of wealth creation. Ask yourself: In the past whenever you saw the stock market correcting did you aggressively invest or were waiting for things to improve or stabilise or to worsen? When the markets were on fire were you gradually selling or thinking that the party was going to last forever? When things were stable or in state of no action were you still slowing deploying? What are you doing now? Things change over time,worrisome scenarios improve over time and by the time you realise it’s probably late again and you are still left holding your money in banks and bonds.

Like every tree takes time grow from seed to sprout to branches and leaves and so on. Once done it also takes time to give fruit. Patience is tested several times during this journey of growth but knowing that fruits will emerge one day and will continue forever thereafter keeps your motivation intact to keep nurturing that tree. Money is no different.

It’s ok to start on simple ground as long as it’s the right track. Taking baby steps will help. Over time the confidence factor improves and you are on your way to become a real,true and star investor.

So I leave you with my question again; what are you

doing now?

— Author is Director,Transcend Consulting kartik@transcend-india.com

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