Should I invest in direct equities or should I invest in Mutual funds?

Should I invest through a SIP in mutual funds or should I time the market?

Even for people who have answered the question ‘should I invest in equities’ POSITIVELY, the above 2 questions are difficult to answer. In fact these questions flummox them.

I have a simple counter to this – and MY questions / dialog goes as follows:

Me: How long have you been in equity markets?
Reader: About 10 odd years, and my father also has some very small exposure to equities.

How has your performance been so far?
Kind of a mixed performance. I made money in some direct allotment like TCS (which I am still holding), I lost a bunch in Suzlon which I bought for Rs.104 a few years ago (still holding), Reliance (where I am not making any money for the past few years), …

That is all nice, but what is your percentage return on the investments made?
Sorry sir, I have not really calculated that.

Do you believe that you can time the market or do you buy whenever you have money?
I think I can time the market but I also think I will go wrong a few times – now and then.

Tell me were you buying equities in 2001, 2002, 2003 – or did you hide under the bed scared of the market?
Sir markets were in such a bad shape that I had kept my money in the bank, I actually started investing in 2005 when the indications were clear that the market had come out of trouble.

In 2009 my father was not well so I had to sell some shares to pay for his medical treatment – and the market was so low that I made a loss. So even my long term investments (Sir 3 years is long term no? My CA tells me that for equity shares long term is one year). Then I have again started investing in 2011. I bought some FMCG stocks which did very well, then I bought Pfizer which also did well and I sold off. I bought some Infra stocks – which have not done too badly, but not done too well either.

MY VIEW:

This person THINKS he can time the market, but of course he has not been able to. If you have been investing in 2001, 02, 03 – when everybody abandoned the market, it is an indication that you have been able to ‘time’ the market. I am using it in the context that YOU did not panic when others were panicking. In 2008 he HAD TO SELL HIS SHARES to pay for a medical emergency – sounds so so so stupid. For medical emergencies you should have medical insurance, AND an emergency fund.

This man withdrew from his equity shares because he was too lazy to withdraw from his LIC policies, or PPF. He did buy some pharma and some FMCG stocks – but he also bought some Infra stocks. Now intuitively it looks like infra will do well – but picking the best infra stocks (at reasonable prices) is very difficult, and one sees professionals struggle doing that.

If he had done a SIP in a multi cap fund from 2001 till today – increasing the amount slowly – annually, he would have a much stronger portfolio.

Timing the market sounds good – just like Santa Claus – both are part of folklore fiction.

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  1. I appreciate your nice article. Even I am also in the same boat of the person you referred in the article. Luckily, i consistently invested in SIP also from 2005, which returned a return of 17.5% so far CAGR. I will do course correction and invest only in MF (that too thru SIPs) Thanks
    JAN

  2. I do not belive theory of time the market is not possiable. So many of my friends and to some extent i too have acheived it. We buy at highest point and sell at lowest.

    Ofcourse, staying with my SIPs (ELSS and others) have keept me away from acheiving this for past 6 yrs.

  3. Subra,

    On the onset,i would like to thank you for a nice blog.i came across it recently and daily catch up all the posts.I am trying to read all your previous posts and found that i have been following some of your advice for the last few years and am happy about it.

    Regards
    Venkat

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