The last few days of the old calendar year inevitably lead up to rather noble New Year Resolutions. Most general resolutions including dieting, weight loss plans and regular exercising, which of course, cannot be and are not usually kept. This is simply because the mere change of a date on the calendar does not change the will and temperament of a person.
It is pretty much the same on the investment front. I am amused when asked what my New Year investment resolutions are. Well, mine is a singular all-year round resolution and unchanged for many, many years. If I had to spell it out, it would read - ‘Keep it Simple’.
For starters, in Equities I place my faith and it has been so over several years. I simply zero in on good investments, accumulate them over time and let these investments compound. Being arithmetically inclined ever since I was a school-boy has helped, as it drove home the magic of the power of compounding pretty early in my life.
Very few legal investment options can beat the returns generated by an investment in a good equity stock or a consistently performing equity mutual fund. My belief, based on the anecdotal evidence that I have been privy to first hand, is that that those who are restless and keep shuffling their holdings, more often than not end up losing the winners in their pack and are left with the more modest and under-performers.
Instead of doing that, if one holds on to one’s carefully curated equity investments, the chances of gaining handsomely over longer time frames tend to improve substantially. The key though, lies in taking the body blows when the market is correcting, without flinching.
Even if one were a passive equity investor, and by that I mean an investor in Index based Exchange Traded Funds (ETFs) or passive Index Equity Mutual Funds offered by Asset Management Companies, chances are, one would still have made a fair amount of money.
Hard data analysis shows that in the 21 years of this century, the BSE Sensex has closed with negative returns for the calendar year only 4 times. This means that 17 out of 21 times, the BSE Sensex has ended in the blue. For the record, the Bombay Stock Exchange (BSE) Sensex clocked negative returns in the calendar years, 2001, 2008, 2011 and 2015.
Furthermore, barring just four years in which the returns were in single digits, in the remaining 13 years the returns were in double digits and in most of these years, they were 25% plus. While this does not necessarily suggest that the same performance can be replicated over the next two decades or so, I would like to think that the Indian Equity Markets will continue to thrive in this decade notwithstanding the inevitable hiccups that might lead to the odd negative returns year or two.
I, for one, would use such a year to further top up my equity investments. As I have mentioned at the outset - I do not over simulate or diversify across asset classes sans very good reason.
In Equities, I place my faith.
Ashok Kumar
Head of LKW-India. He can be reached at ceolotus@hotmail.com