When it pays to do nothing

Followers of financial news are aware of the all time highs touched by the Indian stock market indices. I have been reading mails from three types of investors – those who are yet to invest, those who started recently and those who have been investing for some time now. The points raised by each of these three types are interesting and details the mindset of different types of investors. For instance, those who are yet to start tend to always ask: Is this the right time to invest? And, those who are new to investing would ask: Should I continue investing? The seasoned investors looking for their money’s worth want to know where to invest now?

There is no right time to start investing and one can start investing anytime, as long as they are clear about the time they are going to spend in the markets, than making attempts to time the markets. For those looking for opportunities as the markets soar to new highs, an element of research and analysis is required to get an indication on the right opportunities. They should access fund manager views that are published every month and dig deeper by discussing opportunities with analysts, brokers and fellow investors who are also seasoned.

Continue investing

Investors, who have experienced only a single and upward movement of the stock markets are prone to worrying. They tend to develop an urge to do something with their investments. They do not understand the rewards of being patient and actually doing nothing with their investments other than continuing what they have been doing. I like the phrase used by Charlie Munger – Assiduity. Munger has gone on record to say, “Assiduity is the ability to sit on your ass and do nothing until great opportunities presents itself.” I tell the same to people who think investing should be exciting.

It is also a good time to not overly listen to or analyse what everyone around is saying. The job of a fund manager or an investment analyst is to be perennially optimistic. If tomorrow, the market falls by 200 points and by end of the week if it goes down by a few percentage points they will view it as a wonderful opportunity to buy at a lower level. But, that is not how the mind of an investor works, especially one who starts to see the price movement of his investments frequently.

Just the way we do not measure the height of a plant that we water every day or run to the chemist shop to shop for the latest pain killer—on many occasions you need not do anything different for the sake of it. Do not confuse investing with trading, because with the latter, you need to think on the feet, whereas with the former, you need to think of staying invested over a long period, to benefit from market cycles.

Statistics and countless academic papers have proven time and again the merits of investing regularly and staying invested for the long term in the equity markets. This time is no different if you are looking at wealth creation.

nk@outlookindia.com