Tuesday, August 22, 2017

The Long and Short of it

The fruits of a long term strategy in the context of equity investments are obvious – for all to see - and yet why do scores of investors stay oblivious? The reason can be traced to a paralytic and pervasive fear of entering the markets. And the psyche is the same regardless of the state of the bourses or the status of the investor.

When a bull phase is on, investors shudder at the very thought of an imminent correction. Conversely in a bear phase, they feel that the correction will be devoid of resurrection, and would only worsen by the day. Both thoughts unfortunately trigger the inaction inertia effect. Worse, they impair the faculty for counterfactual thinking that otherwise lends scope for corrective action.

Investors should contemplate market entry in the context of their long term life goals as expressed in financial terms as also the opportunity cost of shying away from the markets. Markets have a marked tendency to be notoriously volatile in the short term and there’s no predictable relationship between returns of previous or successive time frames. Only the long term lends meaning and substance to your investment valuations.

So one can’t really base one's investing judgment based on a quarter’s or year’s market momentum or the lack of it. What one can do is to manage the manageable – which is to forget about timing the market and accept short-term unpredictability as an integral part of the long-term value prop. Postponing one’s investment decision into the deep black hole of the future, merely on the pretext of an uncertain future, is an open invitation to a bleak future.