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ShareIn my long practice as a financial planner, I have come across a very interesting observation --- that a vast majority of retail investors who have made any significant profit in the capital market are actually those who had forgotten they had invested any money in the first place.
The operative words here are 'significant profits' --- profits that mean something and are consequential to one's finances. Everyone makes some money whenever the Sensex moves up by a couple of hundred points. But these are not serious gains. Serious gains are of the kind that my friend --- let's call him Vishal --- discovered when he required a couple of lakhs to fix the leaky roof of his office before the impending rains.
Vishal was in the process of liquidating a few fixed deposits and maybe borrowing the balance when I reminded him of the Rs 20,000 he had invested in Birla Sun Life Equity Fund way back in 1999. Well, as expected, he had no memory of having invested this amount. But since he required Rs 2 lakh and not Rs 20,000, he reckoned it anyway won't help him much. That was till I told him how much it was worth. I can still picture him literally falling off his chair and perhaps you would too when you read this - Rs 20,000 invested in 1999 was worth all of Rs 2.22 lakh on that day. Yes, you read that correctly; Rs 20,000 had grown over 10 times in 10 years.
What was a small sum of money kept aside for a rainy day came to Vishal's aid literally for a rainy day. Not only would he be able to get the ceiling waterproofed without getting into debt, but would even have some left over. By the way, though I have changed my friend's name upon his specific request, the above is a true story like the one that follows.
Paritosh Ganguly is a non-resident Indian who left for the United States back in 2003. He currently works for a leading software company and lives a well-settled life in San Jose, California. Back in the day, before he left India, amongst his other investments was a systematic investment plan (SIP) of Rs 10,000 in Reliance Growth Fund. As is usually the case with people going abroad, everything was a mad rush before leaving and he pretty much forgot about this investment.
Before leaving, Paritosh had given his plan of action to his father and in the absence of instructions to the contrary, Ganguly Sr simply continued the SIP. That was the way things went on till on a recent visit to India, Paritosh happened to come across the monthly debit of Rs 10,000 in his passbook. Compared with what he is earning today, this sum would hardly matter to him, but he wanted to streamline things once for all and wanted to close the investment.
However, as things turned out, rather than stop the SIP, Paritosh ended up trebling the monthly contribution before returning to the US. You would, too, if you knew that over six years the SIP of Rs 10,000 had grown to over Rs 16.50 lakh, thereby earning a return of 26% per annum.
Now if I may ask, how many of you have had similar investment success as Vishal and Paritosh? I hope I am not being too presumptuous in assuming not many would have. Think of it, there is an uncanny similarity between the two accounts. Both were pretty much unaware of the existence of their investments. Consequently, the money was left alone and given time to grow and mature amidst all the cacophony and upheavals in the intervening years.
Many of you would have employed funds in the market over the past 5-10 years. However, if you are honest to yourself, in all probability, these would have been withdrawn at the first sign of perceived trouble, only to be put back again when there was a recovery.
A case in point is in the current context. Money was pouring into the market when the Sensex was at 21000. But at 8000, there were hardly any takers. But do realise that if you invest only at the top or near the top, even to make a 15% p.a. return over the next five years, the Sensex would have to cross 42200. The chances of that happening are at best remote.
But a return much more than 15% p.a. may be potentially earned when you invest on the journey from 21000 to 8000 and stay invested when the trend reverses. And repeat this over and over again, like Vishal and Paritosh ended up doing.In fact, this entire article can be summed up with just one quote from Warren Buffett --- "Be fearful when others are greedy and greedy when others are fearful." So there you have it. To make money, you need to be fearful and greedy. Just take care that you are not fearful when you ought to be greedy and greedy when you should be fearful.
The writer is director,Wonderland Consultants,
a tax and financial planning firm.
