Read this article in Finshots today which is fairly closely related to the topic in this thread.
Because it discusses action bias. Our tendency to take action even when it’s better to sit quietly and do nothing.
It cites a wonderful research study to illustrate the concept. Whereas it states that in penalty shootouts while on an average 39% of all shots goes straight down the middle, only 6% is actually saved.
Reason? You guessed it already.
It is worth mentioning that I am not an advocate of the buy-and-forget strategy. But neither am I an advocate of frequent churning.
Thanks - Arnab Roy
Though Nestle is a cut above the rest thanks to monopoly.
The only index funds (like the Nifty 50) are appropriate for a buy-and-hold strategy when the index is held for very long period of time it thought to be one of the smartest and safest investments. By the nature of how the index works, it automatically gets reconstituted year by year, which nullifies a particular company’s or stock’s longevity and moats getting shorter. Based on the performance of the companies and on fulfilling the eligibility criteria, the elimination or inclusion of old or new stock is done. For middle-class investor the Index funds can only be consider as buy-and-hold strategy for long term important goal setting. A Simpler and disciplined investment can help portfolios perform well over a period of time
Yes, your point is mostly right.
I have recently entered 2 IT stocks during last six months of 2022, because now those 2 IT stocks are looking marginally undervalued or fairly valued, i.e. HCL TECH and TCS.
So I generally being a risk averse person, tend to buy mostly undervalued stocks from 3-4 years perspective and would sell those once I believe that, next 4-5 years price is already priced into its CMP. Since this is my strategy, I generally tend to sell stocks little early but that is as per my strategy.
I have not entered any PSU Banking or Infrastructure stocks as they do not fall in my Buy zone either based on valuations or the risk.
To my understanding, the issue is less to do with Stock Markets but more to do with Paradigm shift in human psychology and behaviour.
Try to remember the times when our father’s generation and even earlier than that, people were consistent. My father worked ONE job and retired and so did many other Bank employees, factory workers, mill workers, people working in mines (Coal, Steel, Iron etc.) and even the businesses, big or small which we often ridicule that the Kirana shop guys are not ready for change with new age and go digital.
In the age of instant gratification and the availability of enormous amounts of information on the internet, we aren’t ready to simply wait for long-term and watch our wealth grow at snail’s pace. Top it up with all these influencers and fin-fluencers gig inducing FOMO. “Ye lelo, ye bech do” and so on.
Imagine your teen seeing his friend bring an iPhone to school and show off and good luck to you explaining why he needs to wait for 5years to save enough for an iPhone. Add some flavour to it by all these crypto hustle and get rich overnight schemes with no actual use case.
Blockchain tech has made it to the curriculum however, do we even have one example of a company/Institution which has hacked its growth using blockchain and become a world leader already? The answer is NO but the buzzword is a real fad. Just like few years back everyone would use buzzwords like Cloud, Quantum computing, and currently AI / ML.
So just concluding my thought that in the current age, humans need immediate results and would not wait long-term for wealth generation and for people who are still calm enough, a decent 15-20% XIRR, ex-brokerage, and other expenses and ex-taxation is a great deal rather than holding long-term with anxiety in the most volatile times which is today.
One a different note, I appreciate the availability of the many choices we have today than in the past. While there are few time tested models which can be relied upon, when many pockets are changing w.r.t finance, and some changes not necessarily for good, I would not sit in the same bus until it reaches my destination, if there are many more vehicles to make to my destination quickly, which in the past were not available. So the effort that I need to put in changing many vehicles is alright.
The outcome would be limited, despite having best efforts and time invested, if there is an absence of certain opportunities, which to some extent the previous generations experienced.
So for those who want to dabble, experiment, try or learn, there is that chance today.
Of course, just because something is available does not mean that, it suits us, and the onus is to know what it is. Personal finance, caveat emptor etc.
I have a long term PF but I look at short term opportunities to trade, and I have some interest in the derivative segment, and I guess whatever little knowledge I have today is because of the varied products available for us today, which is helping me look at things from different angles, having different perspectives towards the same thing, take better decisions and mature as a market participant.
Just my thoughts.
There are many sides to investment effort, even a long term strategy.
(i) It is impossible to time the market theory- this is right for self-styled long term investors like me. I can never forecast the market for today, tomorrow, a month later or the next year. So, people like me are long term investors because they don’t think they are capable of trading.
(ii) Will you stick to a share while the rest of the market gallops away? Show me a person who has not regretted missing the API rally in 2020 and the Defence, PSU & PSB rally in 2022, while sticking to IT?
(iii) Try to be nimble, keep up with the momentum- this comes after you have missed the waves. But then what happens? As soon as you sell Infosys and buy Bharat Dynamic, the trend will change.
(iv) Even following the price momentum has its hilarious moments. Tiger Logistics has less revenue this quarter, but the profit is up. You stick with it for two days, while it keeps falling. Then after it has fallen by more than ₹50, you sell. And there is buying in the stock.
(v) It is about emotional balance: One would keep emotions under control when you know the intrinsic strength of the company, but its stock is falling. But when you have bought a comparatively unknown company and it proves you right for a few months, but then when the results are bad, all doubts about the management start surfacing, and you get out of the stock as far as possible.
So, it is about thorough research and emotional balance, but research is told to go stand in a corner, while your emotions take the centre stage as soon as the results are bad, or the stocks fall badly, and you realise that the stocks that that kid suggested to buy have doubled.
Ultimately you realise you have ended up paying more brokerage than the profit you made in the market.
Nice summary of different perspectives. He’s a small excerpt from William Green’s book to add to it.
Just bought the Greene book.
He also runs a podcast on YouTube “The Investors podcast” channel. A great learning place.