Note: This post is second part of this series about how a reader created a corpus of almost Rs 4 Crores in just 10 years. Like the first part, even this part is worded by Ajay Sreenivasan – a loyal reader of Stable Investor. And i f you haven’t read the first part, please do so immediately (Part 1) before going ahead with this post.

In this part (2nd), he reflects back on his experiences and shares his learnings…which can be used as broad guidelines by other mutual fund investors.

So over to Ajay, once again…



Self-Analysis of My 10+ Years of Investment Journey





Advantages I Had as an Investor

I had a reasonably stable job and income. I had sufficient surplus to invest in markets & mutual funds. I had a habit of Saving. And it was not new and had its origin in times, much before I came to Gulf. Combined with this habit, I also had the Discipline to stick with it. ‘Compounding’ to create its magic. Though I really started ‘planned process of investing’ quite late, I still had age on my side….and this always helps in allowing Because of above point, I had a reasonable amount of time to achieve my targets. Since I had a decent regular income, I had a decent risk taking ability. I was lucky to be part of markets which became extremely volatile at times. I was lucky to witness quite a few market crashes. Why? Because SIP works best if the markets are volatile and present the investors with many opportunities to invest ‘more’ at lower levels. personal loan or housing loan to worry about. This was a big advantage. I had noor housing loan to worry about. Another big one. I had already bought a home prior to investing even a Rupee…and luckily, I did it much before the real estate boom started.



Things I did Wrong: I was late to start investing. And I have seen people repent…and I mean really repent…when they realise that just because they were late to start investing by a few year, their final corpus was nowhere near where it could actually have been. Insurance products). I put most of my early savings into products which actually reduced purchasing power (readproducts). I was very late in creating a plan for investing. I should have done it almost a decade earlier than when I actually did it. I invested randomly without any goals, during the early part of my career. I started getting into direct stock investing, without having the proper knowledge of stock markets or valuations. At times, I went over board with my direct stock investing.





Things I Did Right:

saved and invested as much as possible. And when markets were down, I invested more. as much as possible. And when markets were down, I invested more. Even though I questioned my own beliefs every now and then, I followed Systematic Investing diligently. I identified my mistakes pretty soon (in a few years!!) and started focusing on Mutual Fund investing…as this helped reduce chances of committing errors in direct stock investing. I got myself a financial plan and invested as per the plan (and with a purpose). I took adequate Term Insurance plan. And this in itself is a big factor, when you want to sleep peacefully at night, without having to worry about what will happen to your loved ones when you are not around. I realized and more importantly acted towards separating Insurance from Investment. I said no to ULIPs. I learnt the importance of Asset Allocation and acted upon it. Even though I had so many period where I could have panicked (and at times did) in last 8 years, I did not quit midway. I continued with my plans. I concentrated on investing the set investment amount (Monthly SIP x No of Months as per original plan)…sooner than bothering about the target amount. I cut my losses in direct stocks and re-invested the money in equity fund or debt as per the required asset allocation. I remained invested through out the period of 10 years. I invested only in well diversified Mutual Funds (max. 7) across fund houses. I chose Direct Plans as soon as it was introduced. I used Liquid Funds to park money when I had to transfer money to equity funds through STP (Systematic Transfer Plan). I made mistakes and learnt from those mistakes..and took the experience. I managed not to invest in real estate in the crazy boom of 2006 – 2009. But only time will tell whether I was correct or not.



Lessons To Be Learnt:



Lesson 1

Before Investing, ask yourself these questions:

– Why should I even invest?

– What am I investing in?

– How will I get my capital back?

– What return I will get back?

– Will the return match inflation?

– When do I need this money back?

– Is it the right investment option for me?

– What are the real possibilities of not receiving the capital or expected returns?

– Will my asset allocation allow me to invest in this option?

current market valuations reasonable enough to invest in equity? – And whether thereasonable enough to invest in equity?



Lesson 2



Save as much as possible and start investing as soon as possible. And ideally, you should start investing from the very first day you get your first salary.



Lesson 3



If you are afraid of stocks and mutual funds, start by investing small amounts to gain practical experience of positive and negative portfolio returns. You might end up losing money, but experience gained will help you a lot when you plan for the big amount you want to end up with eventually.



Lesson 4



Have a plan. Even if you think it is difficult to achieve it. Having it is almost half the battle won. And if you cant make your own plan, get in touch with good financial planners. They will charge you money for their planning services. Don’t worry. You are ready to pay your doctors. Why not be ready to pay those who are looking after your financial health? Think about it.



Lesson 5



Invest whatever is possible towards your goals. And it seriously doesn’t matter initially whether its small or big amount. Just go and do it.



Lesson 6



Are you a regular person who goes to office and does not know much about stock markets? Stick to investing in mutual funds via SIP. End of Discussion.



Lesson 7



Inflation can kill you. Seriously. Always include a realistic inflation figure while making your financial plans. Its always safe to be on the higher side.



Lesson 8



High returns expectation can also kill you. And that is because you will start making buy/sell decisions in line with your expectations. Always keep reasonable returns expectations and accordingly, have your financial plans. Its always safe to be on the lower side.





Lesson 9



Have an asset allocation plan and follow it religiously. And unless the valuations become extremely compelling (like PE<14), keep 20% in debt.





Lesson 10



Any money which is not required for next 10 years or more, should be invested in well diversified equity or balanced fund. Remember this as this is very important.



Lesson 11



Any money which is required within next 5 years should be invested in debt instruments. If you have money which you need in next 5 years, please switch from equity to debt instruments as soon as possible.



Lesson 12



Always be ready to face short term notional losses. And remember that your returns could be Zero or Negative, even after 5 years (Remember 2009-2014). But o ver a period of more than 10 years, the general trend is Up. But even this is not guaranteed.



Lesson 13

always welcome a market crash in the early stages of your investment journey. It will boost your return significantly in the long run. Be happy andin the early stages of your investment journey. It will boost your return significantly in the long run.



Lesson 14



Invest some money whenever there is negative news all around and during panic selling to boost return.





Lesson 15



Always keep track of market valuations & your asset allocation. Set your own rules for asset allocation that suits you.



Lesson 16





Review performance of the mutual funds in your portfolio on an annual basis. And replace the under-performers after thorough analysis. Never replace a fund if it underperforms the benchmark for a quarter or two. You need more time (2+ years) to know whether its a good idea to move out of a fund or not.



Lesson 17





Avoid churning your funds frequently as it will not help you, but your broker or RM. And always choose funds with reasonable fees and direct plans.



Lesson 18



For choosing Mutual Fund schemes, always stick to reputed process oriented fund houses and evaluate funds based on all parameters.



Lesson 19



Watch business channels. But only for entertainment. Most advise being given, is for short term and not for you. . But only for entertainment. Most advise being given, is for short term and not for you. Market experts are paid by channels for their opinions. Don’t invest your money to test their opinions. 🙂



Lesson 20



Don’t invest because your friend or relative is investing. Your risk and expectations will almost always be different.



Lesson 21





Mutual Funds are the best investment vehicle for retail investors. Only effort required is to choose a few good funds and invest in them regularly.





Lesson 22



Direct equity investing requires a lot of additional efforts. And these range from evaluating a company to regularly tracking it to finally, exiting it .



Lesson 23





In Mutual Funds, always invest in Growth options. If you require money, you can always withdraw. No point going for the Dividend option.





Lesson 24



Do not panic during bad times / bad news. And don’t get too excited in bull markets. Always stay calm.



Lesson 25





Make it a point to have adequate Term Insurance cover, from an early age. Also make it a point to have proper health cover and emergency fund to suit your needs.





Another Three Interesting Lessons (But With Proof This Time)…



Going forward, lets have a look at 3 (or rather 4) interesting lessons which I will try to make you understand using proofs:



Lesson:1





The following article was published in May 2006, in a online business news website:





This shows that the first hint of a coming market crash was published on 15th May 2006. But as highlighted above, the expert opinion was that there was ‘Nothing To Worry.’

A few days later, the markets crashed as depicted in the next image:





So what does it prove?



It only proves that there is no one who can predict what is going to happen in markets with 100% accuracy. So don’t waste your time in listening to these so called market experts who claim to have the power to predicts the market movements.





A good mutual fund scheme named HDFC Equity’s NAV fell from Rs 134 on 1st May 2006 to Rs 112 on 1st June 2006. A big fall at that time. But today, no one even remembers the crash in the long term chart. The NAV of the fund is more than Rs 480. In January 2005, it was just Rs 67. NAV today has multiplied almost 7.5 times.



There will be sudden market crashes in future as well. And fund NAVs will go down. And down to almost any level. Accept this fact and move on.





Lesson :2



Below is a broad compilation of the BIGGEST falls in the Indian stock market history (upto 2008)





October 24, 2008: Sensex falls 1070 points (10.96%)





March 17, 2008 951 points. : Sensex falls March 3, 2008: Sensex falls 901 points.





January 21, 2008 : Sensex falls 1408 points.

January 22, 2008 : Sensex falls 875 points after intra-day fall of 2273 points.

February 11, 2008: Sensex falls 834 points





May 18, 2006 826 points.



December 17, 2007: Sensex falls 769 points. : Sensex falls: Sensex falls October 10, 2008: Sensex falls 801 points.

October 18, 2007 : Sensex falls 717 points.





January 18, 2008: Sensex falls 687 points.

November 21, 2007: Sensex falls 678 points.



August 16, 2007: Sensex falls 643 points.



April 2, 2007: Sensex falls 617 points.



August 1, 2007: Sensex falls 615 points.

So…do you remember all these dates and falls today? And c an you make out those big crashes in the NAV chart of a good well-diversified mutual fund like HDFC Equity fund?





Its tough I would say…





Over the long term, the graph generally tends to move up. It is the only prediction, of which one can be a little certain of…. 🙂





Lesson: 3





Index value on 1st Jan 2008 was 6144 – A peak value for the index at that point of time. At the same time, NAV of HDFC Equity fund was 224.



Lets fast forward to end of 2010…





Index value on 1st Oct 2010 was 6143 and NAV of HDFC Equity fund was 300.



So…after all the corrections in between 2008-2010, the markets recovered back to the same peak index level nearly after 2 years and 10 months. And e ven if you had invested at the peak valuations (of index) in HDFC Equity fund in Jan 2008 in lump sum mode, the fund would still have provided you with Rs 76 (300-224) gain per unit – and that is when index did not move anywhere at all.



So what does it prove?



It generally pays to stay invested in a good quality, actively managed equity fund.









Lesson: 4





Index value on 1st Oct 2010 was 6143. And NAV of HDFC Equity fund was 300. After all the corrections the market recovered back to the same peak index level nearly after 2 years 10 months.





Now after more than 3 years…



Index value on 1st Jan 2014 was 6301 and NAV of HDFC Equity fund was 304. Again after corrections, the market recovered back to the same peak index level after nearly 3 years and 2 months.





So after 4 years, the Index was up by 2.5% and NAV of the fund also gave similar returns of around 1%



So what does it prove?



Lesson 3 above was proven wrong. 🙂 Always remember, not all rules are applicable and proven, at all times.









Notes and Disclaimers: