Let me start by saying this again “Short Term Thinking Hurts” and hurts bad.
Let us take some examples: There is a wedding where food is served. Of course there are sweets, and very attractive food – well laid out, smelling good, looking good…and of course there is a huge salad table also. There is short term pleasure in choosing sweets, right? So let us say I choose a sweet.
It is actually a LONG TERM pain, even though it is a pleasure for the next 30 seconds. It stays on MY waist for the next 30 years.
So if you think long term pleasure = a series of short term pleasures, it is WRONG. Now if a 23 year old wants to invest what happens? He/she has some feeling that markets are risky (thank you media you have done a great job). Then she consults her parents – who scare her even more. They are sold on governmental products – jobs, banks, post office, etc. So even though this kid is born after 1980, she does not have the ‘guts’ to look at the more sensible options. So the kid goes to the ‘friendly’ uncle who sells her a LIC endowment policy.
Is this short term or long term? Clearly long term, no issues here. Is it a saving product or an investing product? Clearly a saving product.
Why? Simply because the markets are risky in the SHORT TERM. So a short term scare has made this kid go to a less volatile and a very inefficient product. In the short term equity markets look risky because of the volatility. However if you are investing for the long term you need to look at equity.
If you look at 1,2,5 year returns in equity you could see some brilliant returns or some terrible capital eroding kind of returns. This is surely scary. So this kid is made to react to an event closeby…with examples that are graphic!
“You know Kumar Uncle’s son na? He put money in equities…now every thing is gone” – this could be a kid who did FnO or something like that. Details are hidden beautifully.
The media with its shrill voices is not too great at improving the investment climate. They actually ENCOURAGE short term thinking and love trading. So one way to avoid short term thinking is to stay away from the TICKER channels. Honestly. One of the top wealth creators said this on television itself a few years ago almost shocking the host, Udyan.
The other thing that hurts us is the tendency to buy and sell REGULARLY – as an investor there is no need to do that, but again you will have the media playing a poor role. So it is a case of ‘Bajaj Auto did not have a good quarter…maybe you should sell it’ ‘Cyclicals will not do as well as some scrips like cement’ – so sell TCS and buy India Cement. The only way to stay sane is to get away from this cacophony.
I do not think of Bajaj Auto, TCS etc. as a quarter on quarter companies. I am not saying these are not good buys or are good sells -but you do not need to react to every news item on television.
These are surely 2 things that hurt us. Of course there are many others, but take care of these two, and many others will disappear..
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