Chase Goals, Not Returns

Lallit TripathiDirector,
Vedant Asset

Making investment mistakes is part and parcel of the game. But it is important to learn from such mistakes and not repeat them again. This calls for a sound philosophy to investing and a disciplined approach, advises Lallit Tripathi, Director, Vedant Asset

In today’s scenario, the fundamental issue with the mindset of investors is that a majority of them chase returns and invest accordingly to make good returns. But the fact is that by doing so they take extra risk and at times burn their hands while investing. What needs to be understood is that returns are a by-product of the right investment strategy. I have seen that most of the investors who chase only returns have hardly been able to create a decent amount of wealth or if they have been successful at doing so, it has only been for a short period of time. The ones who have generated good returns are the ones who have parked their funds for the long term.

Asset Allocation is the Key
We have heard many a time that asset allocation is the key of investing. However – and this is a very typical scenario – a bull run immediately lures investors to acquire high returns, casting the risk perspective of the investment to the wind. Such investors put their money in one basket and when the markets turn red, they blame not their own misfired strategy but the markets. Hence, a clear and focused strategy of investing with right asset allocation is very much needed for a long-term investment perspective. This implies that a disciplined ap-proach to investments is the need of the hour, one that follows the principals of asset allocation. Only such an approach can make the investment experience both pleasant and profitable.

Long-Term Strategy
Equity is a long-term investment product but here again we ignore the term long-term. Very few investors resist the temptation to not just look at the returns over the short term and also not time the market. By doing so, they miss the bigger opportunity. In India, when the equity markets are seen to be performing well, equity inflows in funds have automatically surged, which of course benefits the fund houses. But as soon as the markets begin to underperform, the equity inflows spiral downwards significantly – a clear indication of the fact that most investors are risk-averse and try to time the market with a short-term perspective.

This make the job of fund managers quite tough as when the opportunity is there to buy stocks at significant levels and create alpha in their funds, the inflows in their funds are quite low. It is only when the inflows are consistent that it gives them the extra leverage to generate better returns. Hence, ‘keep investing’ should be the motto of the investors irrespective of the market cycle. Anticipating and expecting the best returns from investments is not a bad idea but market data shows that in general investors have missed some golden investment opportunities, a recent example being the crisis created by the pandemic.

Balancing Fear and Greed
During the pandemic, only a small percentage of retail investors were able to have the foresight to see the gains that would accrue from the dip in prices. Most stayed away out of fear of the markets collapsing. In fact, the data shows that a significant percentage of investors closed their SIP since their portfolios were turning red. They returned only when the markets turned green once again. It’s a wrong approach to investing. Keeping a long-term perspective and not timing the market is the strategy that works best. Those who have been disciplined enough have been able to generate decent returns in the markets. Similarly, in the debt market, investors try to time the yield cycle, which leads to taking the wrong invest-ment decisions.

Choosing the Right Path
When it comes to investing in funds, the top performing mutual funds have always attracted huge inflows given the fact that investors’ mindset is to follow such performers rather than study the philosophy of the fund or rate the performance of the fund manager or look at the consistency of the fund. The right thing to do is to follow the consistency of the funds and invest in the ideology of the fund manager rather than just blindly invest on the basis of the past performance of the funds. If the fund manager is clear, focussed and on the right path, he will deliver returns, maybe not in the short term but definitely in the long run.

The writer is a Director, Vedant Asset
 Email: lallit.tripathi@vedantasset.com
Website: www.vedantasset.com