The more you see the investing and business patterns of the big players, rather the more successful ones, you see one big word: Consistency.

Look at Hdfc. Dull boring business. IN the 1980s they could have been easily lured into the cement business, right?

The great financial media would have lauded it as a ‘great backward integration’ kinda move. They could have sustained losses and built a great brand of cement? no clue. They did not.

However, in 2000 they move full fledged into the life insurance business. They knew it would make tons of money for them after the gestation period of say 12 years. In 2000 it looked like a bad business. Very low margins, very high salaries, talent fights, …but they stuck through it. With products which were very, very profitable for the company. Regulator, business, people evolutions are not easy to handle. They did it. They poured millions of Rupees into the business. Now it is profitable.

What caused the success? Focus. Ability to commit long term money without worrying about short term interruptions.

Cut to a reasonably good investor. Assuming I build a portfolio for him promising a 13% p.a. return over a 10 year period. Or create nice well tested trading strategy.

Will he really leave it untouched for a 10 year period? Doubtful. Even if it is a SIP in an equity fund, he will want to monkey around with the strategy. How would this happen? Or more appropriately why would this happen?

  • IN a year that you got 5% return your neighbor’s broker got him 16% return
  • In the 3rd year, the first 3 trades made a loss, and YOU KNEW that the 4th will make a loss. It did too. Wow.
  • It was fairly obvious that year 4 was bad because the visible macros were bad in year 3, and you should have moved out.
  • In year 4 you saw that the average return for the first 3 years was a mere 9% – the risk premium was not worth it.
  • Your nephew just joined Goldman Sachs, and he was showing you some amazing strategies…

There are many things which can take you by surprise, anger, etc. and with hindsight you realize that you could have created a better portfolio EASILY. So now you want a new equity strategist, a new broker, a new fund – or whatever. In the 5th year, you want this plan abandoned. Now you want to concentrate on the other things – macro, asset allocation, reallocation among large cap, mid cap and micro cap. Worry about short term taxation on your trading portfolio. A more conservative debt oriented investing to protect your capital because of the forthcoming China meltdown (did not the ticker channels announce that?). Blaming the macro is very helpful, it takes your mind off your own weaknesses and incompetencies. Hence it is important to avoid blogs like Subramoney who blame YOU for your mistakes, and not Narendra Modi as is wont and more fashionable – and less stressful. Oops.

Actually, the time is to focus on the internal: Understand your own emotions. How you react when the market goes down and when it goes up. Or how much of your ‘obvious’ mistakes are NOW caused by hindsight. Understanding your feelings, emotions, insecurities, incompetencies, can dramatically damage your portfolio – imagine missing a 48% up year – it can be a life changing experience. Or seeing your portfolio fall 34% – can be traumatic. Throw in a job loss or a downsizing of the company. Imagine you held on to a conservative strategy for 4 years and got a cumulative return of 3.3%, so you bailed out. IN the 5th year, the returns were 39% p.a. DRAMATICALLY ┬áchanging the average return. What will you do? come back to this fund? Sadly risk and returns are different sides of he same coin. You need to have your PORTFOLIO in place BEFORE the picnic starts, and the risk cover in place before the RISKY event is commenced.

Ha. Consistency, right? that is the word with which we started?

Well change in Equity investing strategy should happen, but that is a different post, is it not?

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  1. Subra Sir,
    I am ever ready to get my portfolio built by you. No questions asked. I will not even look at my portfolio for ten years. BLIND FAITH.

    Deal pakka samjhu kya?

    kishan

  2. It may not be true all the time i brought shares of Unitech, DLF, Vijaya bank, IFCI etc. in Nov-Dec 2007 (later I figured out the market was overheated at that time) and kept on holding till now hoping things will improve guess what am left holding most of these shares at 90 to 95% Loss. Please don’t give me the reason that real estate shares are not worth etc.
    So bottom line we need to be very careful and selective of what shares we hold for long term rather than holding blindly for long term

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