Refocus From Short Term to Long Term
Think long term when investing in stocks
The mantra for success in stock markets is to keep it simple, invest regularly and hold for the long term. Using these three principles, investing guru Warren Buffet has amassed $76 billion (Rs 5,00,000 crore) since he started investing in the late 1960s. His wealth is now bigger than the GDP of countries such as Luxembourg, Oman or Bahrain.
Compounding is more effective if it is given enough time. If someone had remained invested in Sensex stocks since the index was established in 1979, he would have earned 16.2% returns (CAGR till 28 Oct 2016). The dividends and their reinvestment would easily add 2 percentage points to the CAGR. Some individual stocks would have given higher returns.
If the long-term returns from stocks are so attractive, should the daily, weekly or even monthly movements of stocks make you nervous? The answer in an emphatic no. Many factors affect stock prices in the short term, including the investor’s behavioural biases, news and events, volatility in global markets etc. An astute long-term investor would listen to the sound (the long-term scenario) rather than the noise (the short-term aberration) influencing the intra-day or intra-week price movement of ..
Investors should not get nervous and overreact to short-term momentum in stocks. Don’t jump on the table when markets move up sharply or jump into the sea if they fall steeply. It should be noted that corporate fundamentals don’t change as quickly as the stock prices change on the exchanges.
Unfortunately, short-termism has become very pervasive in stock markets across the globe. In the US, the average holding period of stocks was 100 months in 1960. It fell to 8 months in the year 2015. This is true for India as well, especially in the context of markets and other interests. We enjoy T-20, the instant form of cricket more than the longer Test cricket format. Ponzi schemes that promise to quickly double your money are able to garner crores of rupees from gullible investors. Investors can’t see through the farce as the lure of quick gains cloud the rationality of the decision.
Courtesy: See More @ http://bit.ly/2yxb1CQ
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