Equity Investing for long term
In equity investments, it is often said that true success is not about timing the market but the time spent in the market. For that to happen, as an investor you need time on your side. That is, you should be ready to stay invested for the long term. However, the fact remains that as investors we are so obsessed with the short-term rewards that we usually don't develop the capability to see the long term.
The executive cited an experiment once done by a finance professional involving two sets of investors. Over a 25-year period, he had given one group of investors information about their portfolio on a monthly basis. The other group of investors got the information about their portfolio once every five years.
So, in effect, the first group got 300 portfolio disclosures through the life of the experiment while the other one got just five disclosures. At the end of 25 years, it was seen that the portfolio of the group that got monthly information had returned about half of what the portfolio with five annual disclosures had returned.
Equity market returns come only in spurts and they are not accommodating. It means that, unlike in fixed income where you get at least regular returns and those returns are fixed, equity returns are mostly not secular in nature. For strong returns in the stock market, sustaining with a long term focus is very important. Don't worry about short-term blips
This means, as an investor in equities, you need to be invested at the right time to gather in one shot the gains that may not have come over several months. And since it is impossible for even the best of fund managers to always be invested at the right time before a market starts rallying and then get out just before it gets into a bearish phase, it is always advisable to remain invested over the long term and enjoy the gains as they come along in phases.
Investment advisers also say that most investors often miss out on the big picture — that is, the gains that can emerge over the long term — and just concentrate on the short term. For example, companies which are in the infrastructure and energy sectors come with long gestation periods. So, investors in these stocks need to be patient for substantial gains. For example, in the last few years infrastructure funds had underperformed the market by a good measure.
However, if you look at the returns from these funds in the last few months, you can see they are among the best performers, some of them returning near triple digit gains. So, the investors who redeemed these funds in the last two-three years have missed out on a great opportunity.
Often, it has been seen that a year's performance more than makes up for the underperformance of several years. So, investors need to have patience and stay invested for the long term to reap those gains which come in spurts. For this, mutual funds are the best vehicle where either you invest regularly or invest once and leave it up to the fund manager to bring in the gains.
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