- Wealth PMS (50L+)
[This is an excerpt from the Dec 2021 letter to Capitalmind PMS Clients]
Is it the right time to invest? We get this question all the time, but there’s no universal answer.
If you have money that you must invest, you’re only looking for the answer: should I deploy it now or later? Put another way: will the market fall now, so I will keep my money in a fixed deposit and deploy it after it falls?
The problem is that this “gut feel” business only works once in a while. When the market does fall, you have very little confidence, even when it’s fallen 20%, that it will not fall ANOTHER 10%. So you’ll stay out. And then, if it comes back up 10%, you might feel lousy that you missed the bottom and wait to invest. A few of these and the decision fatigue gets to you, and the human psychology works to say don’t take a decision at all—inertia rocks.
And then, if the market goes up another 25% and then falls 20%, you’re still better off in the market than a fixed deposit!
Markets actually make money when you sleep. If you took the trading day, there’s an “open” price (the first traded price of the day) and the “close” (the last traded price of the day). The difference between the two is how much the market has moved within the day (“Intraday”).
And the difference between one day’s closing price and the next day’s opening price is the “overnight” move. If we add all the “intraday” moves of the Nifty and all the “overnight” moves separately, it turns out that nearly all the moves of the Nifty happen overnight.
In fact, if you look at intraday moves, they add up to a negative number – meaning, the market falls when it trades and goes up when it doesn’t. We even wrote about this earlier in a post at Capitalmind in 2019, and that trend seems to hold.
Still, should you invest now versus later? When undecided, I would choose the simple approach: just spread your investment over some time, rather than all at once. It’s a feature that provides comfort, regardless of when you start. A few months should do it. After all, we do have company results in January, the budget in February and so on. Within Capitalmind, we’ve even got a feature that allows you to “scale in” your investments into the equity markets over six months, with the money parked in debt while it’s slowly moved into equity over time.
And as portfolio managers, we will take cash calls from time to time, which means we may choose to have some portion of the portfolio in cash. Cash is a position – it allows us to ensure that it’s available for us to buy if prices fall in our favour.
Performance-wise, it’s been a kind year for us. At this point, in nearly every time frame, all our portfolios have outperformed the index (Nifty).
This is after fees, after all, costs. And includes any cash you own.
This year can’t be a benchmark for the future, and some issues are looming ahead, such as the fear of inflation, the potentially rising interest rates, the omicron variant of the virus and so on. Our thoughts suggest that inflation won’t be as bad as it’s made out to be because supply chains will resume operation in 2022 and reduce the supply bottlenecks that plagued 2021. Rates, too, won’t rise too much if inflation doesn’t. It’s not of much use predicting omicron, but if it does come around, it will still be bullish for markets as governments will push through more stimulus.
This isn’t to say the markets are only going to go up. It’s just that these reasons don’t seem enough to take the market down from our vantage point. More useful, however, is for us to say this: We don’t know, and we know we don’t know. So we’ll choose to react rather than predict. That applies to the portfolios, too: when the facts change, we will take action.
On a less formal note: We wish you all a Merry Christmas and a Happy New Year! 2021 has been incredible from many perspectives: lockdowns, Covid waves, crazy markets and in my case, a book launch too. (I might have an MBA degree too, but we’ll only know that in 2022) We’ll have more in our next letter, very soon. I hope the world is less eventful next year and filled with cheer for all of you.
Connect with us! Capitalmind Wealth PMS is India’s lowest-cost Portfolio Management Service for investors who deploy INR 50 Lakhs and more. You can see more about our strategies at capitalmindwealth.com and their performance here. Connect with us on @capitalmind_in or schedule a call with us by filling out this form