In the last couple of days through print and other media you may have seen news of Indian
stock indices crossing previous high (seen in Jan’18) and reaching new highs. However the rally
did not bought any cheer to the investor community. The reason it is fuelled by only 7-8 stocks
of the indices.  This episode of last 6 months has taught couple of old lessons to existing and
new investors. As per my observation I’m outlining some of them.

Chasing Hot stocks and Funds: Do not go overboard on a sector, category or funds which
were hot and performed well.

In the last 6 months to one year many new investors invested in small and midcap category by
seeing its past returns without giving due respect to valuations. In the current market
correction they are the one’s which suffered a lot.

Take Away: Do not chase for returns without giving due importance to valuations.

Right Behaviour: History shows that major investments in markets tend to happen when going
is good and surrounded by lot of euphoria due to fear of missing out . But when markets correct
and the same set of stocks or funds invested earlier, though available at lesser prices they lack
same conviction to invest.

Take Away: In order to overcome such behavior one need to invest systematically with
discipline, without carried away by notional profits and losses.

Performance: Though some stocks performed and lead to indices making new highs, one
should not abandon their underperforming good stocks and move to performing ones.  Every
fund and stock will have a period of underperformance.  One need to have patience and stick to
them. Over a period of time market will reward them as and when its earnings improve.

Take Away: Price of a stock changes faster than the underlying business. Do not always aim
for out performance and do frequent moving in and out of funds or stocks. Studies shown
that such investors have made very poor returns.

Asset Allocation: Those you follow asset allocation and hold investments in such funds has got
least impacted, as the distribution of assets done across debt and equity and not overboard on
a particular category or sectors.

Take Away: Follow Asset Allocation religiously. It helps to invest funds according to our needs
and requirements. It protects the downside to a great extent.

Other Lessons:
Equity is not a get rich quick scheme.

One needs to invest with a minimum 5–10-year horizon.  Should aim to create wealth by
partnering with good businesses forever.

Do not invest by seeing past returns and on some tips by friends and relatives.

Rather than markets, It is one’s behavior which plays an important role in investment outcome.

I conclude with a message from Prof  Aswath Damodaran in his recent interview:

The key in investing is to be incremental. If you go for the big win every single time, you are
gambling and that is how people get into trouble. I think the notion that you can invest to get
rich is the most dangerous notion in investing. You invest to preserve wealth and to grow
wealth, you do not invest to get rich. If you get rich think of it as icing on the cake, you got
lucky but if you go out and say I want to make a small amount of money into a large amount
of money you can end up with no money at all. So, I think that is the reality investors have to
face is be patient, be incremental and the multi baggers will fall in over time.