This headline of my blog was one of the most successful campaign run by Hero Honda in the 90s, about the mileage for their bikes. The key idea was the peace of mind that the biker will get once they fill the fuel tank.
Now see what we have done with investing. We have made it so complicated by using no. of jargons like technical analysis, fundamental analysis, efficient frontier etc. Is investing really so difficult or complex? As Buffett has rightly said, “Investing is simple but not easy”.
Actually, we ourselves have made it complex in search of alpha generation.
There was a survey done by Fidelity in the USA, in which it was found that the maximum returns were made either by the people who are dead or who don’t remember that they have invested. People who were in search of so-called best funds all the time, really struggled to even keep up with the average returns.
What we as finance professionals have done after going through so many books and theories during our education is to make things so complicated for investors that most of the time they end up on the losing side. What I have found in successful portfolios is that only two things are required to create long term sustainable wealth
What I mean by discipline is to keep on investing regularly without being in the influence of biases like recency or availability biases. Systematic investment planning or rupee cost averaging is one the best tool where you can get over these biases which has more to do with current events happening around us.
For example, a negative event like high oil prices or unfavourable election outcome can have a negative impact on our behaviour leading to some sort of panic selling but if you see in the long term, these things are just passing events or noises.
Having time on your side is the biggest advantage that you can have. Time arbitrage not only helps to see through the panic events but also helps to compound the returns. As Einstein has said “Compounding is the eighth wonder of the word”, especially after 10 to 15 years compounding can really create disproportionate wealth.
Investor Nick Murray once said, “timing the market is a fool’s game, whereas time in the market is your greatest natural advantage.”
As an investor, it’s our behaviour which stops us to follow this simple rule of creating enormous wealth. Investing in equities is nothing but a partnership in the businesses, and businesses create wealth in long term.
Money has a very simple rule it goes from weaker hands to stronger ones, now it is our duty to decide whether we want to bet our money in casino by investing for short term our we want to create enormous wealth by following the principal of discipline and patience.
So, go for long term systematic investments using SIPs and STPs and as the topic says Fill It, Shut It and Forget It.
Nipunn Madan, CFA