When you lose, don’t lose the lesson. In the aftermath of the January crash, most investors seem to have lost both money and the lessons. At least the right lessons aren’t being learnt. This is more worrisome than the monetary losses, which can be made good sooner or later.
Basic investing intelligence doesn’t require extraordinary skills or knowledge. All it takes is inclination and interest to understand simple calculations and principles. For instance, systematic investment plans (SIPs) have become popular in the recent past as the preferred way to invest in mutual funds.
Just as spending in instalments (EMIs) helps us buy products more expensive than we can otherwise afford, investing in instalments (SIP) helps us make investments bigger than what we can make at one go. The attractiveness of SIPs increases in the times of temporary fall in share prices, because you get more units of a fund per rupee of investment made. Yet there are investors who have either stopped or are thinking about stopping their SIPs because the markets aren’t recovering in a hurry. This behaviour is akin to buying potatoes regularly when their retail prices are rising, but stopping when prices begin to fall.
But this is not all you can learn from your losses. Here are a few more quick tests for you: Do you know the benchmark for every single mutual fund scheme that you have put your money in? Do you know the difference between market (system) risk and non-market risks? Do you know the current allocation of your investments? Whether that allocation matches your need and belief as an investor? Do you know why and how to rebalance your investments? On a more general level, do you know how inflation affects returns on your debt funds? If the answer to all or most of these questions is a big blank, our cover story is tailor-made for you.
There is no better time to start learning the basics of fund investing than now. No matter what your investment philosophy is, you are most likely to be a loser at this time. Your loss could be notional (returns on your stocks, funds or Ulips have fallen, but are not yet lower than your original investment value) or real; these lessons will benefit you in the future nonetheless. You have probably already taken one baby step toward learning these lessons—by wondering what do with your current and future investments. Turn your wonder into wisdom. You will see even a momentary or notional loss turning into real and permanent gain.