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Think long-term and be disciplined... - Views on News from Equitymaster
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  • Dec 1, 2005

    Think long-term and be disciplined...

    The Indian markets seem to be on steroids, as it breached the magical 9,000 mark yesterday for the second time in its history. However, the difference between day-before and yesterday was that profit booking took a severe toll on the markets, which saw the bulls run for cover. The ferocity of the correction yesterday, (250+ points if considered from the intra-day high), would have surely taken investors aback. However, we believe that it should be the traders, and not investors, who should be more worried of such volatile moves, which is surely to increase as the indices scale newer peaks going forward.

    Considering the volatility being witnessed on the bourses in recent times, we had recently conducted a poll on our website, to get some insight into the investors' investment pattern, were they speculator's or investors. The results came as some relief for us, as 56% said that they have allocated less than 20% of their investible surplus for this activity i.e. either trading or speculation, 23% use anywhere between 20% to 50% of their surplus for the same, while the balance use more than 50% of their investible for this activity.

    We believe that an investor might make money by indulging into such unhealthy (from our point of view) practices for sometime and probably during a fuelled bull run, but it is the long-term investor who ultimately manages to outperform the so-called 'trader' community. Further, unlike short-term trading, the risk involved in long-term investing is lower. However, some may argue that they are in a quandary of where to invest at the current juncture, since the markets are at dizzy heights, and have hence adopted this practice. We agree that investment in equity markets at the current juncture from a short-term investment horizon can be unfavorable because of stretched valuations, but if one considers the macro developments, there are exciting investment opportunities for the long-term.

    The legendary investor, Benjamin Graham had once stated, instead of registering choices on the 'voting machine' (his definition of markets in the short term), investors should weigh their investment strategies carefully on the 'weighing machine' (markets in the longer term). As such, small investors need to weigh in the pros and cons of their probable investment decisions before risking their (hard-earned) money. While relying on fundamentals is a relatively much safer way of garnering adequate returns in the long-term, relying on short term to make money might lead you to nowhere at the end of the day!

    Thus in conclusion, we would like to advise investors that there is no foolproof method to make money in the markets, but the risk return ratio is favourable for the investor in the long run and a big important factor, DISCIPLINE, holds the ultimate key to success in investing. After all, you don't want to get caught on the wrong foot do you?



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