In­vestors Must Play to Their Own Strengths

The Economic Times - - Commodities Plus - Dhiren­dra Ku­mar

CEO, Value Re­search ke. Am­a­teurs achieve their vic­to­ries by just man­ag­ing to do the or­di­nary thing com­pe­tently and con­sis­tently.

The anal­ogy to in­vest­ing is clear. Great in­vestors hit win­ners. They gen­er­ate re­turns from the un­like­li­est of in­vest­ments be­cause they have the abil­ity to hit win­ners that oth­ers can’t. More­over, be­cause in­vest­ing is a closed ac­tiv­ity, you will come across many who will hide their losers and talk only the oc­ca­sional win­ner that they hit by chance alone. Most of us should ig­nore all this. We should try and be the con­sis­tent ama­teur and con­cen­trate on not hit­ting losers.

What does that mean in in­vest­ing? One of the ba­sic tenets of in­vest­ing is that avoid­ing mis­takes is more im­por­tant than mak­ing bril­liant choices. Many in­vestors, whether they are in­vest­ing in an equity mu­tual fund, or choos­ing stocks to in­vest in, are ob­sessed with find­ing the ab­so­lute top-per­former. Un­for­tu­nately, un­less you are a ge­nius and lucky, this doesn’t hap­pen. What does hap­pen is that such in­vestors flit from idea to idea, gen­er­ally chas­ing past per­for­mance and buy­ing into yes­ter­day’s win­ners to spot the ul­ti­mate win­ner.

On the other hand, the avoid­ing losers ap­proach is very dif­fer­ent. For mu­tual fund in­vestors, this in­volves find­ing a con­ser­va­tive fund with a good long-term track record and then in­vest­ing reg­u­larly through a SIP for a long (as in years) pe­riod. If the pe­riod for which you are in­vest­ing is a short one, this means avoid­ing equity in­vest­ing al­to­gether, in­stead of look­ing for short-term win­ners. It means never get­ting in­ter­ested in any sec­toral or spe­cialised fund, or any­thing that is flavour of the day. It means not stop­ping one’s SIPs in re­sponse to a mar­ket de­cline or a phase of volatil­ity. It’s much eas­ier to suc­ceed by play­ing to one’s strengths, than to fail by try­ing some­one else’s.

In­vestors are for­ever try­ing to find out what other, suc­cess­ful in­vestors are do­ing and then copy­ing that


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