Where is my Money? Lessons from Markets in One year.

Last year somewhere around the same time, the Indian Stock Market was booming. I looked into my stock portfolio and figured I made a decent monthly return on my equity and SIP investments. During this time, I was also planning an exit from corporate life to pursue “my passion” of writing and coaching. I pointed out the returns from my folio to my wife, ‘look how much money we make each month by doing nothing.’ It gave me a solid reason to move out of a stable cash flow and a stint of twenty years in the corporate world. I thank myself though for not relying on it!

At the same time, the so-called market experts predicted a further boom in the markets. There were hints on how the industries will do well and tips on why your money will increase threefold in four to five years. On the other hand, the skeptics mentioned the markets were overinflated, and a correction was due. Then some predicted an absolute crash and bet against the most popular stocks on the circuit (shorting).

Let me explain the impact of what each of the above three scenarios would have done to my money today or any one of you who is consistent in investing.

Market Boom:

Growth hurts no one, especially if you stay invested and have the flexibility of liquidating at the right time. This was my case. I do not trade or look for short-term returns on my money. The market history for a long term (ten-year moving average) guarantees success (i.e., returns are above the inflation and secured instruments). The period of growth stated of about four to five years augurs well for like-minded investors and me. But, I could have gotten a bit greedy and immediately invested based on confirmation from experts. Had I increased investments at what seemed to be a peak back then, I would have invested in an inflated market and seen a substantial dip (for what the markets stand today).

Market Correction:

The scenario is close to reality today, with a correction of about 16% from its peak. Nevertheless, the correction is much later than anticipated and for different reasons (Ukraine-Russia war and the supply challenges). If someone had to time the market based on these predictions, they would be playing the waiting game for too long. Additionally, the correction was predicted to be about 10%. The current levels are way beyond.

Anyone investing at a 10% correction would have still suffered losses. The returns that I made month on month as last year through the market have been wiped out instead and gone south. Hence my gratitude earlier for not relying on this source of income. Not banking on these helped me stay steady and invested even in this correction. And because there is discipline, it works well to keep buying in a falling market.

Market Crash:

The market is uncertain (as it can always be) and highly volatile. The correction can very well lead to a crash. The same is witnessed with the inflated tech industry, start-ups, and cryptocurrencies. Any gains made on meme stocks by Robinhood investors have already been wiped out from their portfolios. Crypto kings and influencers have fallen from whichever cloud they were on. Again as a correction, the crash would be much later than what was forecasted by the pundits (this was due last October).

Investors would be playing a long waiting game and instead enter the market at the wrong time. Or not enter at all, losing the opportunity to invest their money optimally. For me, this would wipe out all profits, as it would do for most. However, this presents an opportunity to buy. Purely for the appetite of playing the long game. Therefore, the current strategy I follow makes the market crash a viable option to invest more.

This post’s point is that none of the market predictors were accurate. Even with a wide range of possibilities, none of them triggered as it was meant to. The case is not unique but a consistently flawed ideology that gives too much emphasis to market forecasters and stock pickers. If you are any one of these, feel free to write to me about why you think otherwise. I shall be happy to discuss and happier if proved wrong. For it would teach me something new.

Readers who are curious for evidence on this can look into the bonuses made by wealth managers or stock pickers based on performance on growth over three years. You will find the performance is never consistent. If you ask them or their bosses, they will probably know it, too, provided they remain honest. Honesty, nevertheless, is seen as a sign of weakness in the industry.

What do I do instead and maybe help you in planning?

Please note this has worked for me based on my position and strategy. Please do thorough planning based on where you are, and do not take this as investment advice.

The first strategy for investment is to be clear on what you need.

Very few or none of the so-called experts would know what you don’t. The fallacy we all fall into is to invest based on market trends. The stock has already factored in the premium based on market trends. This is true, especially for meme stocks, but not so for value-driven blue-chip. You still need to give the blue-chip time to perform.

Also, humans have this tendency to be risk-averse. We generally prefer not investing 100 bucks which might give a 10% loss but has the potential of giving 25% profit. We prefer certainty over uncertainty, especially with money. Be clear you will take some degree of risks while investing. But the degree can be controlled by you and your needs. You can be smart and diligent.

The second is the golden rule of diversification.

If you dump everything into one instrument, you are always at the mercy of the market. Hoping the market always stays high than what you invested. This is not just improbable but impossible and against the laws of life. If you have difficulty staying invested in times like now, you are moving out with significant losses.

However, in an emergency, your alternate fixed return assets safeguard you. Hence, diversification helps. The opportunity cost is not losing out on market returns with all you have but also on withdrawing everything from the market when the trend can reverse. You must factor in both.

We live in highly complex times of market dynamics. No one knows what instruments or strategies are best (no one ever knew). In these times, having an extremely diversified portfolio will see smaller investments into one category. However, a single class might take off exponentially and compensate for the rest. So look at Fixed Deposits, Insurance (Investment for Medical Exigency), Real Estate, and Commodities (Natural Resources). And yes, cryptocurrencies included!

The third is to invest long term.

Some of your needs might vary if your income entirely depends on the market. However, it would help if you provisioned for a long haul. We tend to look at market returns over a fixed period and calculate profits or losses. We must, however, focus on a more extended period (ten years for me) to see the graph curve significantly upward. I can do this again through diversification.

If you have to make decisions on the market based on the past six months, you will observe the market fell by 5500 points on the Sensex. If you compare for a year, the growth has been about 3000 points. For five years, however, the transition has been 22000 points (71%), and for the past ten years, the change has been approx. 37,500 points. You decide what you want.

The art of investing (which I am still learning and always will) stems more from the psychology of money and regulating our emotional intelligence than having some superhuman skill. The psychology is to stay steady and spread out. Morgan Housel’s Book titled ‘The Psychology of Money’, speaks all about understanding investments on which I wrote earlier.

For the experts, the difference lies in an understanding of theory and an understanding of ground reality which is so complex. No one knew or predicted the Covid-19 pandemic (the previous market crash), and no one knew or expected the ongoing war (a significant driver of the current market correction). No one predicted the 2008 stock market crash either.

Yet we hail expert opinions which are at best slightly knowledgeable and hold command over the language. The strategy that works for me is based on my needs in life; the same should be for you.

About the writer

Roshan Shetty is an author, corporate coach, and consultant. He trains corporates on Leadership, Emotional Intelligence, Change Management, and Wellness.

His book Shift Left on Emotional Intelligence and skills required for the future is available on Amazon worldwide.

Learn more about his work at www.roshanshetty.com. Subscribe to his YouTube Channel, Cult Curator, for life hacks on well-being.