Conversation with an Investor – Part 3

A very small percentage of investors sail through the tough times in the stock market – incidentally, a very small percentage of investors create wealth

(COVID-19: Mar/Apr 2020 conversations)

Investor: Where do you think the market will go from here?

Advisor: I cannot predict that. And it does not matter where it will go in the near term.

Investor: That is fine, but our portfolio is in 30% loss as of today, and I am investing since the last 2.5-3 years. You said one must invest for 5 years to get reasonable returns. Hardly 2 years are left now.

Advisor: 2 years is a long time. We are still far from 5 years of investment target. 

Investor: But the portfolio is down by 30%, how the portfolio will recover within the next 2-3 years.

Advisor: See, we have invested in fundamentally sound companies, with strong balance sheets. We may lose money in a couple of stocks (as one cannot make money in every stock, no matter how much research you do), but overall the portfolio will yield returns. 

Investor: I am losing my patience. This sounds like some magic would happen in the next 2-3 years, and we would not only recover the 30% loss but also make returns of 5 years in this short period of time. How is that possible?

Advisor (smiling): My words may not give you comfort right now, though I understand your concern. I can only recommend you to wait until we complete 5 years of investment. This is not the first time we are witnessing a downfall in the market and not the last time as well.

Investor: I am sorry but it is easy for you to say this. It hurts to see the massive loss in the portfolio. It is my hard-earned money.

Advisor: It is not easy for me to say this, as I am invested in the same stocks/schemes in which you are. I have my skin in the game. My portfolio also fluctuates the way your portfolio does.

Investor: That doesn’t give any kind of relief to me. I am naturally concerned about my investments, irrespective of how your investments are performing. 

Advisor: Exactly, it is because of this human nature that ‘we care more for things which belong to us than the things which belong to others’, I applied this approach of skin in the game. The only way I can align my personal interests with that of my investors is by investing in the same stocks/schemes and in the same proportion.

This keeps me on my toes and I do not invest without thorough research. Sure, I can make mistakes, but I would always invest with the utmost care and after a detailed study. After all, my own hard-earned money is at stake. And I care about it. 

Investor: Point taken. But what do we do in the current situation? I do not want to exit with this kind of loss. At the same time, I am not sure if I should stay invested, or rather if I should invest more.

Advisor: In my opinion, you must continue with your regular investments, the way you have been doing for the last 2-3 years. In fact, if you can, divert a portion of your debt investments towards equity, in a staggered manner, say over the next few weeks and months. 

I know it is not easy to do this. But this is what long-term investors do.

Think about it like this – what do you think Warren Buffett, Peter Lynch, Philip Fisher, Rakesh Jhunjhunwala, et al would be doing in this situation?

Investor: I get your point. Let me contemplate on this. I am not going to exit and most likely would continue with the regular investments as well. But I will think about diverting the debt portion to equity.

Advisor: You must keep your emergency funds intact. I am not recommending you to touch that. Anything beyond that, which you may not need in the near future, that portion you can invest in equity.

And this is a bonus – if you can invest, fine. If you cannot, fine.  

Investor: I got your point. I hope I am able to sail through this time.

Advisor: I am sure you will. If everyone could sail through these kinds of situations in the stock market, all would have created wealth. I know you are not amongst everyone. J

Investor (smiling): Thank you for your guidance. I may contact you again for further queries or concerns which I may have.

Advisor: You are most welcome. Take care of your family and stay safe.

…………………………….

Investors are going through a similar conversation with their advisor in the current situation.

Not all the investors will sail through. Those who can reap the benefits.

Investing Made Simple

https://anupamroongta.com/conversation-with-an-investor-part-3/