Being Patient Pays

“Investing is not supposed to be easy, and anybody who finds it easy is stupid.” These words of Charlie Munger were highlighted by Howard Marks in a recent lecture to India’s value investing community. This set me wondering again about the current narratives that dominate the Indian investing space. Post-2014 elections, equity has been an asset class that has delivered better returns than any alternative. Other asset classes don’t seem to be anywhere near returning to a position where they even generate normal returns. Infact, It will be a surprise if other asset classes return even as much as the prevailing inflation. With such visible lack of choice, It appears that equity is the only choice. And, even lay investors seems very aware of this reality and are strongly receptive to equity. The all time high fund flows into equity mutual funds and PMS schemes reflects this perception. The argument in favour of equity is sound. But, one must always find the right valuations to make equity investing succeed. Investing at any valuation is not a good idea. This is how investment mistakes always happen. Investors now have a peculiar challenge where they need to allocate a lot of capital, savings have very few competing alternatives and equity valuations look stretched. The challenge before an investor is to go against the market and make contrarian investments in undervalued parts of the market. Or, one must keep saving money, accumulating them in short term liquid funds and be investing through corrections. Investors need to show extraordinary patience in times when finding investment opportunities with the right valuation fit is difficult. Investing at any valuation simply wont do. Getting the valuation right is the priority now. Quoting Howard Marks “When there’s nothing clever to do, it’s a mistake to try to be clever.”

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