These days you find a good number of senior citizens dabbling in stocks but since many of them are late starters, they, as well as their near ones, are often unsure if it is a worthwhile activity. The more regular investing is, higher are the chances of making wealth. Financial experts advise regular investing, yet investors — young and retired — don't adhere to it. Why?
In stock markets, to develop the confidence of investing regularly, one should have complete faith in the underlying businesses of the invested stock. Imagine, if the stock price of a business promptly drops by 50 per cent, would one invest in the same stock or exit it? If the investor had done enough research before choosing the stock, he would take a wise decision by accumulating it. If that investment was purely based on a stock tip, one would find it difficult to continue investing regularly in that particular stock. Hence investments based on short term ideas will not only make losses but will make them stop dealing with equities. It is a good idea to set a reasonable expected rate of return from equity investments rather than setting unrealistic goals. Unrealistic expectations can leave your finances in a mess. The return from a stock is based on the performance of its underlying business.
Hence the investor's stock selection should not be based on the stock's short-term price fluctuations. Investors may be overwhelmed by the recent rise of a particular stock's market price, but the real value of its businesses may be far less than its market value. So investment decisions purely based on the stock's recent market price can negatively influence the returns from such investments. Discipline and patience are the two hallmarks of a successful equity investment. There may be prolonged periods of practically no return but in a short period, the entire appreciation gets bundled together.
(Umesh Thottathil is Analyst-Fund Management at Moat Multi Family Office in Kochi)
