Inversing a Hardcoded Behaviour

 Be conservative at the top of the market. Be aggressive at the bottom of the market. Don’t inverse this behaviour.

Invest in debt. Debt is a capital protection tool, not a return tool. You won’t lose money investing in a liquid fund or an overnight fund. Even in other debt funds such as floating rate, ultra-short term, medium term, and dynamic bond fund, the chances of losing money are slim.

The aim is not always to make big money, it is to protect what you have (made). There are times in the market cycle when you invest to be cautious. The returns will be low or moderate, but capital protection takes dominance.

Investors who invested in debt in 2017, 2018 and 2019, specially in certain (debt) categories, and then switched to equity in the stock market crash of 2020 would have gained a lot. In March 2020, investors invested in equity to make money. Now, investors should invest in debt to protect their money (2021).

(excerpts from S Naren on how to navigate the equity market)

source: https://www.morningstar.in/posts/65517/sankaran-naren-navigate-current-market.aspx

Markets near lifetime highs

Many investors try to time the market when we hit an all time high, stopping the ongoing SIPs.

History shows that we can go wrong in timing the market. Time in the market is more important than timing the market. 

This image shows the number of times Nifty made new highs each year. Just because the markets hit new highs doesn’t mean they have to fall. Even if you were to time the market, i.e., sell at the peak and buy at the bottom, you need to be right twice. As much as we humans like to think we’re good at predicting things, we aren’t. And even if you time the market perfectly, you aren’t guaranteed to beat a simple SIP. (Source : Zerodha)

Equtity is good to reach your long term goals and these are 5+ or 10+ years away. It is easy to get carried away by short term market gyrations and stray away from your investment plans and break the discipline. To be successful in investing, we will have to focused and keep emotions at bay.

1) Find your risk score using a risk profiler

2) Create an asset allocation for equity / debt based on the risk score, Eg. 60/40 

3) Rebalance your portfolio of either equity goes beyond 60 or falls below 60, this way you do not fall for emotional bias, at the same time you are protecting profits made and investing when markets are cheaper.

 

Smart Investment Solution

Buy and hold vs. sipfit.in smart investment solution

The same equity scheme thru smart invest has genereated 16% return

(based on back testing)

What is sipfit.in smart investment solution?

At certian extreem valuations (red zone) based on valuation trigger, funds will move from pure equity to dynamic equity/ liquid funds,

& at exteem low valuations (green zone), funds move from dynamic/liquid to pure equity funds

this cycle continues and protects downside at the same time participate in the upside

During the 5 year period the sensex delivered negative returns (see graph below), 

Rs 10,000 SIP for 5 years of 6 lakhs delivered 0.42% in a popular equity mutual fund

But the smart exit strategy of sipfit.in ensures you would have got 12% CAGR in the same mutual fund by exiting when markets were expensive and by re-entring at a lower level

This was the year when market corrected -60%, the exit strategy helped us create 12%

October 2007, the sipfit.in smart solution triggered an exit form pure equity owing to high valuations, but advised continuing the SIP in Debt fund, in march 2009 when market became cheap, the funds moved form debt to pure equity

(based on back testing)

Protecing the downside

Investing & dis-investing in the right asset class at the right time is the secret ingredient of the smart exit strategy

Green zone - if investors had invested in Nifty and held it for 5 years there after, you would have made average of 26%;

Yello zone - the average came down to 15% ;

Red Zone - Average return came down to 7.5% ;

80% of investors invest in Red zone (due to biases such as FOMO, Herd mentality etc.) only 1% invest in green zone

SipFit.in smart investment solution automates this process thru pre-defined triggers so as to not fall for biases (greed and fear) which is the single most important reason preventing investing success

Excellence in Investing

Excellence in investing is not any different from other fields.

Daniel Chambliss followed an experiment and determined what led to success.

Excellence is mundane.

Investing has to be lacking excitement; must be a dull process. Anything else is not investing, it is speculating.

 Excellence is coming together of many small things done consistently and over long periods of time. He said “maintaining mundanity is the key psychological challenge” in the pursuit of excellence.

We underestimate the impact some habits can create, like Savings & investing for example.

The Brain seeks thrill and excitement, in overanalyzing and predicting the future. It can not fathom a simple mundane process to follow a systematic investment. If we start one, it creates noise either with over excitement or lack of any, creating roadblocks to the process.

“If you pursue 'returns' too vigorously, you’ll never get them”

Patience is the most crucial element. Most of the investment philosophies will be effective, just give it enough time. Our ability to stay the course matters the most.

The Formula for Excellence in Investing (Mundane!)