Confusion of an Equity investor – what to do now ?

Confusion of an Equity investor – what to do now  ?

Last 2 years return from equity fund has been low to negative , present looks bad and future many saying worse yet to come. Now many equity investors might be thinking

1.       Did we do mistake by investing in equity mutual fund ?

2.       Should we get out and stop our notional loss ?

3.       How long we need to wait ?

Today economy is slowing down , corporate earnings reducing , job cuts happenings in various industries , bad debt rising in banking sector .

If someone ask me how long this slowdown will continue or when we will see reversal in these negative trends it will be just a guesstimate based on what I am reading or hearing . There also what I am reading , hearing is contradictory. Some say nothing wrong but its structural issue, some saying its cyclical problem  , some saying worse yet to come ….. . some defensive , some optimist , some pessimist . whom to believe and whom to not ?

I have always believed that there is no other teacher in this world than your own experience and observation ?. Believe yourself and what you can cross check yourself. So here I have tried to answer based on what I have seen and I will like others to also cross check based on their own observation on what has actually happened and is supported by facts .

The biggest risk comes from economy and all good or bad we have seen or talked has been  emanating from state of economy and economic factors .

Economy has always been growing in long term ( > 7 years time horizon ) and have been unpredictable/uncertain /good/bad in short term ( < 3 to 5 years ) . In every long term please remember there are many short terms . So even if I take my 20 years of experience which is good that has mix of some small term bad experience also .

Market is a reflection of how the economy stands at that point of time . Again this also has to be viewed in long term and short term .

Market ( Stock market ) has always been growing in long term ( > 7 years time horizon ) and have been unpredictable/uncertain /good/bad in short term ( < 3 to 5 years ). In every long term please remember there are many short terms . So even if I take my 20 years of experience which is good that has mix of some small term bad experience also .

Market movement is also linked to behaviour of different participants in it . There also I have observed tow things – (1) Market always over react in both situation more bullish when economy expanding and more bearish when economy is slowing down (2) whether its speculators or arbitrageurs or investors ( different type of participants ) no one wants loss , all wants profit .

Lets look now life and analyse what it was 10 , 20, 30 ….years back and what we can expect 10,20,30….. years ahead . Lets answer one question were more products/services earlier ? Answer is No . Do we expect more products/services in future ? Answer is YES . But why it is so ?

Life for all is governed by GROWTH aspiration . Growth and Aspiration of what ? --- Better life , better lifestyle  --- and that is catered through some or the other product /service provided by some or the other company – so investment if done is some good product manufacturing company which is in demand by people it will earn good return as sales will lead to profit and profit will translate to better valuation of that company share and that will translate to NAV growth .

Yes the risk is of short term as explained above but since our life is of 60,70,80 … years and we do require any product/service every second of life and its demand growing due to growth aspiration in long term good positive return will come .

Life is uncertain in short term but life always want to be good . So in this uncertain world one certainty is we all want a good life .

Now let me answer earlier question which might be hounding the minds of many investors

1.       Did we do mistake by investing in equity mutual fund ? – Definitely NOT . It’s a right decision

2.       Should we get out and stop our loss ?  -- It will be a big mistake if you do now . If you invested without understanding short tern uncertainty then you were misguided

3.       How long we need to wait ? – any recessionary trend ( worst form of economic slowdown  ) does not last long for more than 3 -4 years so may be notional pain for couple of years . You have another 20.30.40…. years to live so why to worry of this short term .

One thing which you should always be taking care is no risk of your short to mid term liquidity requirement and that investment at any point of time should be in safe asset i.e debt and that is liquid, in better quality company and is less or not effected adversely by rising interest rate .