Invest for Long Term in Equity

Juzer GabajiwalaVentura Securities

One of the most important principles for investing given by famous Warren Buffet is, “Focus on the playfield, Not on the scorecard”. By this he clearly means that games are won by players who focus on the playing field – not by the one whose eyes are glued to the scoreboard.The key to equity investment is PATIENCE PATIENCE PATIENCE. This most of us, unfortunately, lack.The problem initiates when….“I have not got any gains even when equity markets have reached 27k”, “Mutual funds do not make money even after investing for 3 years”, “Who will keep investing for 10 years? It’s a long period…”—we have heard all these statements from many investors.Majority investors watch the markets go up & down from day to day and count their profits/losses on a daily basis. The investors look only at the short-term performance and if the performance is not good, they get frustrated. Sooner or later it provokes investors to sell their investments and sometimes even worse, to stop their SIPs.This is what had happened during the post 2008 crisis; many investors gave up and stopped their SIPs. This is the worst choice because the whole point of SIPs is to keep investing, specifically when the markets are down. It is the investments that are made when the markets are low which make the greatest profits but unfortunately this is the time when pessimism & negative news is also at its peak.How Long is ‘Long Term’?The answer to why many investors fail is very simple: Not enough Patience to invest for the long term. This answer would probably not surprise you; unfortunately, most investors do not put this trait into practice. This is because they don’t know how long the long term is.Let us look at an investment started 11 years back on 1st January 2003, and held till 30th August 2014. The psychological behavior of an investor has been plotted on the graph below along with his portfolio valuation at different market levels:Investment of Rs. 100,000 and different levels of portfolio valuationThe evidence is startling and heavily favours long-term investors. An investor, who stayed invested for 11 years, would have faced uncertainty in returns in between but today would have a substantial corpus if he or she had held on through the entire roller-coaster ride.An investment of Rs. 1 Lac starting from the bull run period of 2003 till the end of 2007 has fetched approx Rs. 14 Lacs and hence, the investors would have been happy and overjoyed.Thereafter, the global crisis and a major fall in equity markets from 2008 to mid 2009 made the investment almost lose half of what it had gained, which created panic and fear in the investor’s mind and led many investors to stop their investments or book less profits. People who would had invested at the 2008 lows and stayed invested for 3 years till 2011, would have thought they have made no money at all, because valuations were close to the same level.Even the period Jan 2008 to Jan 2014 was much muted as investors were making more money in tax-free bonds than in equity and investors were experiencing a sense of frustration as investing for 6 years would have not really have delivered much gain.Nevertheless, those who were still invested and waited for their investment to grow are reaping the benefits now in August 2014, with their money having almost doubled since 2012 lows, making their portfolio value Rs. 25,27,868!Conclusion:Successful long-term investors always ignore the noise in the markets that is not based on deep research but on random analysis. Hence, it is very clear from the above illustration that staying invested for the long-term would yield better returns, provided you have faith in the long-term story called INDIA.