“Boom Crash, 10 years of diligent investing but where're your profits?”: Decoding core practices to guide asset selection and long-term investing

Not long ago, the equity markets were predominated by dormant retail investors and institutional investors dominated the space. It is not yet cliché to say that COVID-19 has been a catalyst for the adoption of fintech that has translated to financial inclusion, thereby making investing accessible across the economic strata. For the first time, the retail investor segment was on the rise, hitting record trading volumes of approximately 45%. Democratising finance in tandem with a calculated approach is imperative for the newly empowered investor venturing into the markets of one of the fastest wealth-creating economies, India.

There is a rising wealth segment called the ‘new middle class’. To put it simply, these individuals have moolah worth INR 2,000,000 in average savings per year. Here, the choice between a luxury car and a stock dictates their financial outlook – and the ability to make bank with their first few millions. For those with wealth generation goals, I advocate that starting early and starting right is spot on. Adopting sound principles from the greats adds immense value, especially when planning for the long term.

Take Warren Buffet, one of the greatest investors revered for his patience. His conviction got him started at the age of 16 and he still holds some of his initial investments. This is only possible if investors are aware of where their financial capabilities lie and how strategic planning can complement the end goal. Note, you need to live long enough to develop a high level of patience and this is where investing in your physical and mental well-being holds the key.

Adopting smart money philosophies??

I advise retail investors looking to feature among the upper echelons of wealth segments to adhere to philosophies proven to generate wealth. As per the Hurun India Wealth Report 2020, there are 4 main philosophies toward investing:

● Active investing

● Risk-averse

● Passive?

● Risk-seeking

Naturally, these bends will largely impact asset choices and preferences, with risk appetite being a particularly influential factor. It can also impact strategy, even bringing about discrepancies between investment objectives and the plan in motion if undefined. However, many assume that this appetite for risk, or lack thereof, is something hardwired into our DNA. This is humbug considering that it is possible to steadily formulate an appetite that delivers. Defining the investment philosophy isn’t negotiable in long-term wealth generation, but there may be wiggle room when it comes to risk appetite.

Establishing an intelligent asset mix

Asset allocation strategy sets investors apart from different wealth segments. For instance, as per the Hurun India Wealth Report 2020, self-made millionaires prefer assets such as investments and profit-sharing, while those who inherited wealth favour assets such as real estate and entrepreneurship.

For any investor, establishing this mix is key and often boils down to the risk-return profile of an asset class. Some options are differentiated based on the level of management required. More volatile choices demand a proactive hand and vice versa.

The choices are plenty, ranging from cash, equity and fixed income to real estate, debt, energy and others. As a recommendation, I believe realty and power are fascinating sectors, with realty stocks setting the theme for the decade.

Understanding market ebbs and flows

In 2021, market movements were akin to the early 2000s, with a broad-based rally across all-cap stocks. For the uninitiated, this fluctuation was favourable, but all isn’t lost to those who missed out. Partial deployment can work when there are smaller, opportune dips. This level of understanding is crucial and hinges on diligent market performance evaluations and reporting.

In fact, a sectoral approach, wherein asset management, insurance, retail consumer goods sectors and allied healthcare services are considered, could prove profitable in the current market. This is consistent with the data published in the Hurun India Wealth Report 2020.?

Small and midcaps are always big gainers in a bullish market and the biggest losers when bearish. Understanding these macro-level fluctuations paves the path to sustained wealth generation, across all wealth classes.??

Long-term, sustained wealth generation is only achieved when there’s harmony in investing philosophy, planning, and execution. Ironically, taking the exponentially volatile path and not just a linear consistent growth path fulfills the proverbial saying - nothing ventured, nothing gained.?