INVEST AND KEEP AWAKE

Equity investors are invariably advised to remain invested for a long period in order to derive maximum benefit from their investment. In the short run the markets witness sudden ups and downs which are ironed out by the time factor. The secular trend has almost always been upward. The suggestion and the truth that equity investing to be profitable has to be a long term activity is almost a universally accepted norm. Does that mean investing in stocks is like planting a tree which would grow tall over a predictable length of time?  Equity markets are an extremely dynamic and often volatile phenomenon exposed to host of local and global influences. As such there is need to know how long is long enough to produce the desired results. What should an equity investor do to achieve his objective of keeping his original corpus safe while earning reasonable returns?
My suggestion is one should keep awake. You cannot afford to invest and go to sleep. The markets today are exposed to innumerable influences which can zap an upward movement leaving the investors high and dry forcing them to redefine what is long term investing, and the period that is appropriate for an honorable exit. We invest to achieve certain financial goals at a certain predetermined time. One may have to get out of the market after what could be a long period due to some personal compulsions at a time when the markets are going through a downward phase. Would such a person reap the benefit of long term investing? Not very likely!

This necessitates constant monitoring of your investment. However this is not as simple as most of us would tend to believe. The ideal way to guard against such eventualities is to ensure that as your goal approaches you reduce your exposure to equities and increase it to fixed income bearing instruments. For example, one should start reducing exposure to equities once the goal is less than 3 years away in a manner that by the time your goal is about a year away, the amount you need for that goal is entirely invested in debt.



The equity markets do not function inisolation any more. Globalization has integrated the world equity markets into a very cohesive entity. It therefore becomes mandatory for investors in stocks to keep themselves abreast of the developments and happenings in the world economy at macro level as well. Not paying heed to what goes on around you on the global economic front can prove costly. However, one must also guard against impulsive decisions while doing this. Quite often it has been seen that people while monitoring markets frequently, tend to get influenced by the noise in the markets and take impulsive decisions which are mostly detrimental to the long term health of their portfolios. While it is prudent to monitor the markets and your portfolio at regular intervals, one must guard against doing that on a daily or weekly basis and / or churning the portfolio frequently.

Of late, markets across the world have been buoyed up with signs of recovery in the US economy and proposed changes in the banking rules (BASEL norms). Stock market indices across the world reacted very favorably. Is this recovery going to be a long lasting one or is it just an economic quirk? We all wish it to be a real one. It is rather difficult to predict its future course with any degree of certainty. The ground realities do not warrant putting any undue reliance on these so called positive signs. The financial system and the fiscal health of many European nations prevent us from lending any meaningful credence to these optimistic indicators.

The western economies which thrived in the wake of industrial revolution and great strides in science and technology accompanied by territorial expansion and military superiority saw enviable rise in personal and corporate incomes. But with the rest of the world, helped by availability of cheap labor, catching up with the advanced nations in the recent years, these developed nations find their competitiveness getting eroded. They started losing markets resulting in large scale unemployment.

Things seem to have come full circle for countries like China and India who were leading producers of manufactured goods in the beginning of the eighteenth century. They are back in reckoning as economic powers and are again establishing their supremacy in global markets. The development in technology seems to have peaked with the micro chip. Lack of significant innovations in technology has turned the erstwhile economic super powers into passive onlookers. Now these developed nations are depending on sale of military hardware and their superior research and education set ups. Innovation does not come by merely through wishes. It takes lots of work and entails huge financial outlays and years of hard labour to come with something that can change things for them.