Is the cash call right?

When markets correct, are you one of those who felt regretful that you could have sold and gone into cash earlier? Don’t worry. You are in good company. The savviest investors of the world don’t constantly trade their well-chosen bets. Yet, over long periods of time, they make much more money than any investor can imagine. When they keep trading their investments, they inevitably are forced to take a cash call. That call always tends to go wrong and it happened to most people in 2012. Till 2014, they waited in FMP’s which are nothing but term deposits. And when they finally redeemed them in 2015, they rushed to invest the monies in equity. Investment anxiety can be hurtful. It is born of intense regret and has the ability to blunt one’s ability to make objective decisions.

Compounding cannot happen if we frequently interrupt the investment process. There could be days in every year when the portfolio looks down and out. When regret takes over an investor’s mind space on such a day, he would fail to do anything objective. The days when a portfolio is down is actually the perfect time to make incremental investments. It is an opportunity to make a lateral entry into equity at attractive valuations. In a long and boring market cycle, when stocks trade low, an investor should focus upon increasing his exposure to equity. As investor’s know very well, markets ultimately are slaves to earnings. Needless to say, earnings go through their fair share of good and bad times. And, bad earnings don’t last forever. When one sees bad earnings hurt our stock prices or fund NAV’s, it is no time to move into cash. On the contrary, a savvy investor should bet on the return of the good times. His bet is certain to succeed. The only question is “when?” While there are no ready answers to that question, investors know from past experience that the more time it takes for that to happen, the window of opportunity remains open longer. The investors can put in as much money as they can into equity. Putting the available cash to good use must be the priority now. Hoarding it won’t help create long term wealth.

 

The successful investor is usually an individual who is inherently interested in business problems. 

Leave a Reply

Your email address will not be published. Required fields are marked *

one × five =