It is not in our genes to wait

Most market commentators today are worried about a correction. There is consensus that the markets are in overvalued territory and that every geo-political event, biohazard situation, national debt issue is looked upon as a possible trigger for the much awaited, much feared correction. And with the benefit of hindsight, I can assure you, dear reader, that we will be plunged into much remorse, hand wringing at “not being able to have sold prior to the event” if it were to happen. However, with another benefit that long experience lends, most awaited events rarely happen, or in the way one imagines them. As we remain in an anxious mode expecting bad news, good news irritates us and causes us even more anxiety in the present.

It is fair to say that most participants swing on emotions of the extreme – if it is not time to sell, surely it is time to buy? Sadly, we have lost perspective of the equity investing game, if indeed we are expecting action orientation.

“Waiting helps you as an investor and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.”

This wonderful quote from Charlie Munger is a timely reminder that if we are not gifted with the “patience” gene, we will have to work hard at overcoming our emotions the hard way. Learning to stay, and not just do something.

Wealth in the equity markets of a substantial nature is generated over years of time. Any intervening period of volatility, either a crash or a boom, is part of the entire time series. Staying invested through times of booming markets and periods of extreme price erosion are data points that add up the total returns of the equity market over long period of time. Timing the market to exit before a crash and deciding the time of entry, every time is a game that has never been done successfully by anyone in recorded history. Thus, knowing these facts why do investors keep asking the wrong question?

The way to look at a market at any time will be use a valuation framework, work out if it is trading at a premium or discount to such a framework and then understand the sentiment. This may only allow an investor to assess the sentiment but does not guide him to conclude about the immediate direction. Nevertheless, it is helpful to understand the scenario prior to investing or divesting and apply some long-standing rules that govern investment success in the longer term and such a framework helps in this endeavor.

What is waiting?

Fear of missing out is the most important thing to be aware of

Most new investors who have entered the market in the post Covid era have experienced significant gains in the India equities markets. Such tales of “easy money” are now proliferating to others who are yet to enter or are on the fringes with very limited exposure. This fed by news and social media are causing a severe case on FOMO, or in other words, fear of missing out. The persistent feeling during such times is that someone is making easy money, while I toil at my daily job/business, and can I have a piece of this action?

Such entrants do not take the effort to understand equity markets and are far away from the concept of “waiting”. Companies perform over long periods of time. They transform themselves from being small to becoming mid-cap to eventually trade as large caps. However, all companies do not follow this trajectory and hence the concept of “risk” emerges. There is of course no way to predict which company will succeed and carry the investor with it. The best way to approach then is to build a portfolio of such promising companies and … wait

This is the part that most investors miss and are unable to understand especially in raging bull markets when such easy money appears to be made almost daily.

No easy way out

Hence, caveat emptor and may the knowledge dawn on all investors to be patient and wait for the markets to do the rest

Mr. Tushar Pradhan
Chief Mentor – Investment Strategy, Multi Ark Wealth & Director – HXGON Partners LLP

Disclaimer-This newsletter is being curated by HXGON Partners LLP, a knowledge partner of Epsilon Money. This newsletter is not intended to be used as a recommendation and is generic in nature. Investors should follow the advice of a qualified investment advisor before making any investment decisions and should read all investment related documents and risk disclosures.
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