Are you a simple-minded investor?
Shivang Bhagat
Strategy Consulting | Healthcare & Life Sciences | Gold Medalist (PGDM)
The market is very low right now; this is the best time to invest!
A statement said by many people right now and some of my friends pinged me to know how to invest and more importantly where to invest.
First of all, there is no magic stock in this digital world, where information is omnipresent. As the famous professor and Dean of valuation, Mr. Aswath Damodaran said that valuation is a craft and we need to focus more on the narratives and less on the numbers. The book value, P/E, EV/EBITDA values used for valuation are hardly reliable in the current world.
So, should we try and use our brains in the futile effort of picking the right stock? You might get lucky but what if you don’t!!! Even Warren Buffet found it difficult after the 1970s to find undervalued stocks or companies that had the potential to grow faster than the rest of the market.
Considering the fact that stock picking is difficult for most of us(even analysts fail outperform sometimes), I believe a simple alternative would rather be to pick an index fund (like Nifty 50, BSE Sensex). Index funds are dumb, they just invest in the companies of these indexes proportionately. (For more information you can visit https://cleartax.in/s/index-funds-etfs)
As these index funds are dumb, they cost less than the other smart ones (which put a lot of time, effort, money to pick stocks). I feel index funds are a safe bet right now and that’s why I choose to be a dumb investor by investing in them.
If you are a simple-minded investor like me, research about index funds, and if you like what you see then buy the direct version instead of the regular ones. (direct vs regular funds: https://youtu.be/fHV7YkmAsoU )
Finally, make an informed decision and do some background research before you invest! (you can educate/boast in front of your friends or family about it)
Till next time! Stay safe :-)
Investment Banking
4 年I completely agree with you. In this uncertain scenario, it is better to invest in index fund rather than individual stock to diversify risk.
Research | Gartner | IMT Ghaziabad
4 年Thanks for sharing this Shivang Bhagat . In my opinion, index funds are a great when the markets have undergone a tragic decline, like in this scenario. As it is almost a certainty, that you will be able to get decent returns in a medium to long time period. But in case of a stable market, the returns offered by a index fund wont be enough of an incentive for a investor with a risk appetite. That being said, for those who don't have the time to be an active investor and would prefer investing in a low risk and return instrument, index funds are great. Also the low expense ratio of an index fund is an incentive in case you are going by the mutual fund route. If you pick them up in the secondary market, the low cost factor doesn't apply. What do you think ?