- Wealth PMS
Prem Sagar has posted a review of my blog. His feedback is well appreciated and one thing he mentions which is interesting is that I have a shorter time frame of investing.
He’s right. While I deeply respect value investing and it has in the past generated enormous returns, I think a shorter term of 1 to 3 years is more appealing to Indian investors, largely because of a mindset issue. You can gauge mindset by asking: Where will I be after five years? You must know the answer to that in terms of:
You then have a more long term mindset. Unfortunately a large percentage of people I know don’t believe they can give any answer to the above. People change jobs and locations so often they don’t know where they’ll be the next year. Careers change often. People can just about blurt out answers for a 1 year timeframe.
The other factor is the environment. We have not had a party rule our government for more than five years, anytime since 1996. State governments get overthrown, voted out or otherwise affected every few years. Our tax rules morph themselves every five years: Five years ago, Long term capital gains were taxed, dividends were not, tax rates were higher, stock options were considered taxable as bonuses and so on. Divident reinvestment was attractive tax-wise, and now it is not.
Thirdly, the rapid growth has changed the face of the nation. With rapid growth, certain things that were “hot” are now invisible, and certain other things have become “hot”. Mobile phones, just ten years ago, were exclusively for the rich. TVs were a hot industry in the 90s. When things change rapidly, it produces a short term vision because we’d like to “strike the iron when it’s hot”.
All these factors add up to provide short term views of 1 to 5 years. Some people have even shorter time frames.
At one time I thought I could change this mindset. But I have realised that I cannot. It is beyond one man’s control, plus, I think I am as guilty as the rest – even I personally like to book profits in a year or so.
And I have come to the conclusion that buying purely based on value or “fundamentals” is a “buy and pray” approach – meaning, you buy and pray that the price will appreciate. What we should be doing, as retail investors, is buying good stocks when the market STARTS to recognise them. Not earlier.
This means timing the market – and there are ways to time buying and selling stocks, which are very simple techniques that you and I can follow. Secondly it means discipline – selling stocks when they make you lose so much money (or fall so much from their peaks). Thirdly it means monitoring the market every week or so.
Given that, I would say my aim is not to pick the exact top or bottom of the market – but to time a buy or sell so that we ride the momentum, but don’t get stuck with a stock forever. I would typically expect to get a good return in a one year timeframe, and only choose opportunities where returns are trackable and visible. This is why I don’t do real estate, and I don’t like long lock in periods or exit loads.
Therefore, my blog will most likely talk about opportunities that are attractive in a 1 to 3 year time frame. Nothing wrong with other approaches, just that I want to make my approach clear. Let me know what you think.