The second anniversary issue of Geojit Insights coincides with a slightly difficult phase in the stock market, as we will soon be facing general elections. Often before the elections, the general investor behaviour is that most people tend to think “let us face the elections and after the elections let us invest”. Many investors think in terms of redeeming mutual funds, stopping SIPs and restarting it after elections. That is the reason why traditionally before the elections the markets tend to be lower and after the elections, it picks up. This is often the attitude of most of the Foreign Institutional Investors also. They will look forward to stability, new reforms etc., in the new government.
But there is an interesting learning for all the investors. Hard data prove contrary to this perception! In the last 6 general elections, those who invested before the elections made money after the elections. When we look at the history and the data, the big mistakes made by many investors become crystal clear. A mistake retail investors always make is that they forget that the market moves in cycles and that the underlying spirit of the market is fear and greed. And the consistent behaviour is that when the market goes up every one wants to invest, they start SIPs, buy stocks etc.
Let us take the example of the period from 30 Dec 1999 when the Sensex closed the year at 5006 to 31 Dec 2003 when it closed at 5839. In this short period of four years, the market saw several events such as Dotcom bubble, the stock market scandal and political upheavals. The market went down to 2600 points on 21 September 2001 and many investors who were bullish in 1999 sold their shares and quit investing because they were fearful. But those who held on benefitted. The markets continued to rise.
Here is the Sensex Graphs of 1999 to 2003.
2003 onwards the market started going upagain. The investors once again spurred by greed continued increasing their investments right from 2004 to 2008. Then came the next great fall in 2008. And instead of learning from the past and increasing their investments, many people instead of buying, started selling their investments. In 2009 and 2010, the market picked up its pace. So the people who purchased when the markets were at its height, sold when it hit the bottom and left the market losing money. So this is a mistake that should not be repeated.
This simple data should remove your fear that this is not the time to stop your SIPs or redeem your MF investments. Patience pays in the market.
Another telling example of beating cycles and to come out of fear is to look at what kind of returns the market gave from 1998 to 2018 if one had invested Rs 5,000 a month in SIP in Franklin Templeton Mutual Fund, one of the oldest MF schemes.
Rs 14,40,000 invested became Rs 2,85,05,987!
Right now, the phase we are going through is an opportunity for those who are fearful. Look back, analyse the history and gain courage to have patience to continue long term investments. Also remember that SIPs are ideal instruments for retirement planning.
Small systematic investments over longer period beat market cycles and investors will successfully earn a stable positive life.