As a seasoned as well as novice equity markets investors, we have a perception that equities are a risky asset class.
Here, we would like to say that this perception is somewhat true for two reasons:
- If you compare it with other asset classes in India, the return generation/upside potential is enormous.
Given the high returns, it is implied that the risk is also high.
- All the major political/economic/geopolitical events have a bearing on how the markets will perform in the near future. And sometimes, it is a tedious task to understand and calculate the implication of such events on the performance of the market.To make sure one is largely insulated from any such uncertainty, it is crucial that one follows a systematic investment methodology to mitigate the risk. This investment methodology consists of:
- Investing in real growth companies. These real growth companies are based on a robust business model, credible management and healthy financial statements which makes them strong enough to stand the test of time.
- Investing for a longer tenure. When we say long-term, it does not mean few months. We are talking about staying invested for 2-3 years or longer. It is essential to understand that when we are buying a business, we should not have a vision of only few weeks or few months. This is because for any stock price to grow, the underlying business has to grow, and this may take time.
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.” – Warren Buffett
The increasing impact of external factors on the stocks markets
Many times, generating returns from the stock markets may seem uncomplicated and effortless, if the uncertainty is not impacting the stock prices in a major way. And this was the trend which we witnessed in the last two years.
Even with the twin shocks of demonetization & GST implementation, muted corporate earnings growth rate and ascending crude oil prices, the Indian indices kept scaling new heights in the previous years. As seen in the table, the BSE small-cap index earmarked the surge of 50.61% in the last one year followed by the midcap index which gave the returns of over 42% during the same tenure.
|Benchmark growth rate in last 1 year
|As on 23rd Jan, 2017
|As on 24th Jan, 2018
|Increase in %
|BSE Midcap Index
|BSE Small cap Index
Many investors rejoiced over the fact that their groundwork analysis paid off and that the basic analysis would suffice to invest successfully in the stock markets.
We have one question over here: Will the same investing method prove to be efficacious to identify real growth companies in light of evolving market dynamics?
If you fail to adopt a systematic approach while investing in the stock markets, you may feel that the markets are expensive and may decide to stay away due to fear, which may not be the right thing to do.
Amid overvalued markets, there are signs of recovery in the fundamentals of our economy on account of:
- Improvement in the liquidity: In the past few months, we are observing increased participation of domestic as well as FII investors in the equities market.
- Structural shift: Due to the new reforms such as GST and demonetization, the economy is moving from unorganized to organized sector, which in turn resulted in a shift from physical to financial assets. This transition will give a tremendous boost to the savings behaviour in India, and thus encourage more inflows in the markets.
- Corporate earnings recovery: After few years of muted growth, signs of on-ground recovery in the
earnings rate is visible now.
The current market scenario demands systematic investing in real businesses rather than running away in fear. Any financial expert, worth its salt will advise you to consider the impact of the micro and macro factors before investing in any stocks.
There are two ways to do this:
- Dedicate sufficient time and inculcate required research skills to conduct your own analysis and periodic monitoring.
- Hire an expert who has the experience, research competencies and sharp acumen (which is difficult to learn) to identify the right businesses based on your financial objectives.
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
– By Peter Lynch
This brings us to the most frequently asked question: How to hire the right financial advisor?
With the emerging advanced technology and changing economics, the right investment advisor adapts to such changes and deploys technology and systematic research methodology to evaluate the stocks.
- He possesses the required skills to catch the trend which is only possible with years of investing experience across various business cycles and sectors.
- Investing in the stock market demands mental balance and conviction. A right financial advisor doesn’t panic in days of correction and neither encourages insatiate desire to book more profits during the days of stock rally. He doesn’t get influenced by the intermittent gains/losses. In fact, he looks at the stock from a long-term perspective and leverages on the power of compounding to create wealth.
- The advisor not only advises you on the right stocks but is capable of providing you with an end-to end solution which includes portfolio allocation, portfolio rebalancing and periodic monitoring of the recommended stocks.
Why Research and Ranking is the right sailor while you are on your voyage of wealth creation?
Research and Ranking follows a simple investment methodology. With the aid of technology, we analyse your profile and identify the right businesses after screening various qualitative and quantitative parameters that impacts the fair value and performance of the stock. We believe in actively managing your portfolio by monitoring them on a periodic basis to identify the impact of micro/macro factors on the fundamentals of the company. Our objective is to not only protect your capital but aim to create wealth for you to the tune of 5xs in 5 years i.e. a CaGR of 35%+ p.a.
Read more: About Research and Ranking.