Calendar 2020 has, so far, made almost all Indian investors, big or small, look like really sick patients. Nearly all strategies have been decimated in a market that resembled a ferocious killer dog let loose on a flock of chickens.
So what are the learnings that you should take away from this bear market?
Lesson 1: Asset Allocation Sahi Hai
Asset allocation is not just the best thing, it’s the only thing. If you are just going to be a single asset (largely equity) player, then you are not going to last very long in this game.
Asset allocation basically means your investment pie chart is strategically diversified across various available asset classes.
Why should you do that? Here’s the data: In 2019, government treasury instruments in India were up 9.5 per cent. Gold prices rose 24.6 per cent. In contrast, Nifty500 delivered a mere 7.7 per cent return.
In 2020, the picture is even more stark: Indian equities have fallen 25 per cent, while government securities have are up 3.4 per cent and gold has delivered 17 per cent!
But did you ever hear any fund manager or your financial adviser tell you that you were better off investing, or at least diversifying, into government paper and gold, instead of focusing on equities if you wanted the best returns? Clearly not.
The reason for this is simple: nobody in the business of fund management or financial advice makes much or any money by recommending investments in government securities or gold. The maximum fees are for recommending equity.
All behaviour, good or bad, is always driven by incentives, and equities incentivise their salespeople far more than any other asset class. Even if they do not deliver returns.
Don’t ever forget this!
Lesson 2: Take a portfolio approach to Investing
Most investors believe taking individual stock advice, or ‘tips’, from aggressive brokers and then implementing them on their own is the way to making big money.
Wrong. This is a one-way ticket to financial ruin. The correct approach is to take a portfolio approach to determine your asset and equity selection.
For every stock you buy, be absolutely clear how much allocation to put into that stock, how much sectoral weightage does it add to your portfolio, and how does it alter the risk profile of your equity pie.
Just doing random stock purchases without having a clear portfolio plan will lead you to a point of no return in your investing life.
A case in point is the professional fund managers, who put 40%-60% plus of their clients’ money in financial stocks and saw portfolio values erode dramatically over last few months.
Lesson 3: If there is one God in investing, it is Risk Management
Prevention is always better than cure. You have heard this many times. This applies equally to wealth as it does to your health.
Strong risk management is that preventive measure that can ensure that you never need to go into a financial hospital.
Avoiding big losses is about the closest to golden advice you can ever get.
To illustrate, if your Rs 100 becomes Rs 65 in a market fall, you need a 50-60 per cent rise in the market to just come back to Rs.100! That’s usually a 2-3 year journey.
As human beings, we are not accustomed to making decisions that recognise pain or crystalise losses. We are happier taking pills to mask pain.
Recognising and booking a loss becomes an ego game: "how could we be wrong?"
Unfortunately, this approach can bring a permanent end to your investing career. And some of the most misleading advices that you hear is to keep averaging on the way down. This approach is marketed by selectively cherry-picking data.
In reality, it is always better to ruthlessly accept a loss and look for better places to deploy the remaining capital.
Unless you are prepared to be brutally clinical about surgically removing losses from your portfolio, you are destined to see them grow into terminal festering wounds.
Lesson 4: Do Global Diversification if you want to avoid SCCARS
SCCARS stands for Single Country, Single Currency, Single Asset Risks. The 10-year data for returns from the Indian stock market in dollar terms is a shocker: It is negative 3%.
What it means is that the average Indian’s wealth has been eroding in US dollar terms.
In 2019, India was one of the worst performing markets in the world.
Most markets gave returns ranging from 25 per cent (Italy) to 50 per cent (Russia). Even in 2020, India has been right at the bottom of the performance tables, along with Brazil.
Therefore, contrary to what is constantly told to you, India has been a very poor-performing market for several years now compared with its global peers.
If you are not diversifying your investments across the world, the market is going to extract a very heavy price at some point. Japanese investors experienced this in the 1990s, in some other parts of Asia in the late 1990s, and European investors in last 10 years.
If you strip investing of all its jargon, it is a pretty simple game: avoid big losses, stay with the winners and diversify investments across asset classes, sectors and markets.
This is the simple ‘pranayam’ approach to investing. And it works!
From the desk of
Devina Mehra
If you want any help at all in your wealth creation journey, in managing your Investments, just drop us a line via this link and we will be right by your side, super quick!
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(A version of this article was first published in The Economic Times)
Economists Think Dollar's Fall May Explain the Recent ‘Rally’ by Steve Liesman
Einstein taught us about relativity in nature. Now come Devina Mehra and Shankar Sharma of First Global to teach us about relativity in financial markets -- and raise some serious questions about just what is driving stock prices.
First Global reports are quite credible and, on occasion, more than that.
What prompts this mention is Intel's earnings report and the fact that First Global has had a pretty good bead on the company and its stock.
AMD up again following First Global upgrade to ‘buy’ (AMD) By Tomi Kilgore
Analyst Kuldeep Koul at First Global upgraded Advanced Micro Devices (AMD) to "buy" from "outperform," given the "exceptional traction" that the chipmaker's Opteron line of processors has been able to get.
Baidu Climbs on First Global’s ‘Outperform’ Outlook
Baidu Inc., the operator of China’s most-used Internet search engine, rose to the highest price in two weeks after First Global rated the shares “outperform? in new coverage.
Personality counts: Walmart's frugal, but Target charms
"It's better to take a slight hit on [profit] margins and keep on moving and inventing," says First Global Securities. And at least for now, Target is inventing in a way that appeals to consumers with money to spend.
Dead Batteries
At 11 times trailing earnings, Energizer is cheaper; Gillette's multiple is 25. But cheaper doesn't mean better, says First Global.
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@devinamehra @firtglobalsec
invested in both GFF-GTS and Super I50. Thank you very much for such wonderful investing experience with completely new approach. In my 15years of investing first product I felt which close to what customer want.
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by far you are the best, I have not come across transparency, acumen, global expertise, exposure, protection of capital, delivering return from any fund/ fund managers. Invested very small size in 3 products will keep on increasing it over the period
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@KarmathNaveen the person with whom I always interact
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Very happy & relaxed to be invested with first global pms
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With so much of volatility in the market, risk management is very important part & considering that FG is doing awesome work!!! Kudos to you Chief
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We can load above testimonials on site as a scroller, and just below that we can add a section for compliments . Below tweets are comments and praises are related to our content, performance and some our direct compliments to you.
ADIT PATEL @ADITPAT11226924
Good team...
Special mention @KarmathNaveen .. he is soo helpful anytime of the day or night..
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Bought Peace with FG-Hum.Moving all funds from DIY investing to well managed and diversified PF at low cost.
It has doubled almost, excellent pick.Every small investor must invest in her FG-HUM Smallcase.
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I have 8 small cases and your has been the most rewarding ones .. thank you Devina.
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There is absolutely no doubt that she is one of the best investors of India in modern times but more importantly, she shares the most sincere and sane advice with retail investors.
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Wow Superb Returns🔥 Congratulations Chief for being Number 1 among all PMS!!!
You are one of the sharpest mind in Global Stock Market
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Congratulations Devina, results talk in itself!
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We are learning More about markets (& Life ) thanks to U than we learnt in our Professional courses.A BIg Thank You, Wish all get Teachers Like You!!
Sumit Sharma @MediaSumit
"The ability to be comfortable with being outside consensus is a superpower in investing...and in life." Devina ji hits the nail on its head!
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Congratulations @devinamehra mam! All the best for long term returns as well.
Vinay Kumar @VinayKu05949123
This is the wonderful session I have ever attended till date. One of the most fruitful hour of my life. Devina madam, ur clarity on financial mkts is simply superb.The way u portray the facts supported by "data" about stock mkts is really astonishing.I will listen again.Thanks.
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I loved to read your journey, insight and philosophy. It's a pleasure to read and know of your takes on market and life.
MNC🏹 @Focus_SME
Check & follow @devinamehra's timeline for lots of post debunking such rosy stories. Also, she gives amazing 🤩 sector directions/hints.
KLN Murthy @KLNMurthy2016
Good actionable insights, great article!
Suresh Nair @gkumarsuresh
Devina Madam is simply terrific... good knowledge, straight and simple thinking.
Very difficult to emulate such traits. I listen her past interviews from youtube.
Respect...!!!!
DD @AliensDelight
One of the brightest minds in the world of finance :)
Radhakrishnan Chonat @RCxNair
📣 Calling all investors! Just had an incredible interview with @devinamehra, Chairperson and MD of First Global. We discussed the importance of global diversification, effective asset allocation, and the risks of sitting on the sidelines. Trust me, you don't want to miss this!
siddarthmohta @siddarthmohta
Excellent performance. Flexibility is the key as you have mentioned it earlier also. Cannot have finite rules for infinite mkt opportunities.
Boom (বুম)@Booombaastic
To be honest, the insights which Devina madam brings in is very enriching..have learnt a lot from them...
Himanssh Kukreja @Himansh02428907
One of the most accurate analysts :)
I always look forward to you interviews mam
Abhijeet Deshpande @AbhijeetD2018
Madam, It is always a treat to read your insight, not only on business but on other topics also!!
Dada.AI @dada_on_twit
Thanks for this wisdom ma'am. Always love hearing your thoughts on everything equity. :-)
adil @zinndadil
Excellent points!
Can clearly feel this thread is a product of marination of many books and years of experience. 👍
Kamal thakur @Kamalgt10
Superb !!
Your knowledge, analysis & articulation is simply great 👍
Tanay @Tanay36232730
Follower on Twitter and Subsciber on YouTube of First Global, really helping me in my investment desicion. Thanks
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