In 2014 a study by AssetMark, Inc., a consultant for financial advisers, 95% of mass affluent investors said they are invested in the market for the long term. However, 58% of those investors also expect their advisers to frequently change their investments based on market conditions! This is interesting and probably explains what we have actually felt on the ground!
Whenever we speak and meet the prospective clients or sometimes even when we speak with our existing clients; this is a common sense of feeling shared that “I am a long term investor”.
However, we have noted in quite a few existing clients, not many (honestly – proud to make that statement) would get nervous during the volatile markets. But the % of prospective clients whom we meet to start the new PMS agreement is quite different and large number of people in that population say that they are long term investor but would not want to take brave steps in the volatile markets.
With last quarter of heavy volatility we thought it would be a good topic for introspection for investors as to think on their behaviour in last two months and decide for themselves if they are really long term investors.
A. What makes one a long term investor? – Apart from self-proclaiming! Check out the following behavioral aspects
1. Were you focusing on your business/profession rather than watching the market fall?
This would be the best reflector of your truly long term investor behaviour and this would give really good fruits provided you have invested in good stocks!
2. Did you have surplus funds and could you take any steps for investing the same?
As Mr. Buffett says, Be Greedy when everyone is fearful and vice-versa, this would indeed be the best times to make good long term investments and that will be an equally good sign to show the long term trait.
But if you were waiting for further fall and wanted to be opportunistic then there is nothing wrong but just one comment that it has been practically impossible to do bottom fishing and hence it would be very difficult to know that the bottom has come and this is the time to invest!
3. Were you getting tensed with the fall and were you evaluating that the stocks that you hold are good or bad?
Evaluation of the investment decisions is a very good thing, but not at a time when things are bad across the market and with all the stocks. One should review the stock on an ongoing basis but not on days when prices are down (which would mean that the decision changes as the price changes!) If the price is down not because of the shift in fundamental of the company but because of overall market scenario; then best action is to ignore! (See the below image)
4. What type of portfolio reshuffling was done during this period?
Indeed in these time would want to take some steps though not an ideal time, but yes its a human behaviour. Just check if you sold the ones with profit making so as to ensure that profit should see your bank account then that may not be the right reshuffling. Because, good stocks, with times, would recover soon.
B. Why long-term investing helps?
Well, I think this does not require any discussion, as most of you would have heard the advantages of long-term investing and does not require any explanation. Just being “to the point”
- Saving of everyday time
- Saving of Money (Taxes as well as transaction costs)
- Most important– “Power of Compounding” (8th wonder of the world)
C. When Long term investing does not help?
When you are holding a company which is not having either a good management, good & scalable business and strong financials; then it very less likely that staying invested for long in that stock will give good returns.
D. What are the steps you may take to become a good long term investor?
- Be thorough at the time of making investment; once you have evaluated it’s a matter of tracking industry trend, monitoring the results and reading annual reports.
- Be patient in bad times; because with all types of hurricanes and tornados, there are companies which has consistently given returns it could be a fall for sometime (sometime can be even 6 months!)
So invest for long; invest for good! Happy Investing. Care PMS Team