Equity Investing needs Patience - Not Intelligence:

Whenever I present this slide in Investors Meeting, that too line by line - the excitement would mount up. Rs.10000 invested in 1980 in WIPRO is worth Rs.541.44 Crores!. And this is apart from all the dividends received over these years. (Last years dividend alone is Rs.2.86 Crores!!). 

Often this slide leads to a question by some investors who say "I have been investing since 1980, but have never made even a fraction of the money".

My answer to them has two parts : 1) Ability to identify stocks like Wipro 2) And staying invested all along.

Identifying stock like WIPRO is a tough task. But even more tougher is staying invested till now. Even those who invested in Wipro in 1980 have not made such huge money - The reason being - they sold too early, in the name of profit booking, over valuation, contentment and what not. The result is obvious : Investment returns is more than Investors Returns. The resultant gap / loss between these two is due to Behaviour Gap.

(Source: The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money by Carl Richard.)

Equity Investing is an art. Those who know to cut the noise in the street are the ones who make money. But vast majority of investors get distracted, lose focus and get lost - like the current situation:

Sensex hit its historic high of 32686 (on 1st Aug 2017) and Nifty hit 10178. After a huge run up, many investors are getting uncomfrotable at these high levels. They feel these high levels are unsustainable and market has to fall. Infact, many of those investors who missed out investing earlier are praying that market should crash - so that they would get another opportunity to invest.

But the reality is - the Indian retail investors through Mutual funds - primarily SIP's, have been pumping money, month after month into the market. Atlast they have discovered to invest for the long term. This is now acting as a huge counter balance to FII's selling pressure. Most likely when FII's return after few months, markets may remain where they sold and their buying pressure could lift the market further.

More over Indian Stock Markets are bound to do well over the long term for following reasons:

1. The GDP growth rate in past 30 to 40 years on a 3 to 5 years average has been 12% to 16% . This is nothing but the sum of GDP + Inflation (6%+8%). This growth has been irrespective of governments, monsoon, global crisis etc.
2. The main reason for this secular growth rate has been the Population growth itself. India is a huge consuming economy. Hence we are least dependent on exports. We can consume whatever we produce. This is not the case with many countries who have capacity to produce but not consume. Hence India becomes a big market for these countries and they have no other option but to deal with India and do business.
3. Demography (age of the population) has been the buzz word for past few years. Indian populations average age has been 26-27. This is the age at which these young people get employed, earn money, spend money on basic needs and lifestyle, get married etc. Hence there is bound to be a constant churn in the system - Cash will be flowing across the channel.
4. Reducing Family size : The indian culture has been a joint family culture. But in the recent hurry burry world, many of these families are breaking up and lots of small individual families are getting created. Invariably all these families need home to live, basic amenities like fan,light,washing machine, microwaves, fridge, TV etc. For instance, if a family breaks up into four families, then all these amenities get quadrupled - fueling the economy.

.

In todays world, every indian family has got a mobile phone, 60% families have TV, 10% have a Car and 4% have an Air conditioner. This broadly gives an idea on the scope of growth.

.

All these factors don't change overnight. Hence there is little sense in worrying that market is at 32000 point. There may be stagnation / fall in short term. But the long term growth story is intact. You can no way avoid this growth. Investors simply need to learn the art of cutting the noise and listening to the music.They need to stay focused on their investments and keep investing incrementally to avoid regretting like the way many are doing with the WIPRO case! 

.

At the end Equity Investing Needs Patience - not Intelligence!!!
.