Two legends but theme is the same
One legend surrounding Dussehra is that it depicts the battle between Lord Rama and Ravana. The battle is said to have gone on for 9 days and Ravana was considered an invincible warrior. These 9 days of Navaratri represents the battle between Lord Rama and Ravana while Dussehra, the 10th Day, represents the victory of good over evil.
The other legend surrounding Dussehra is that it depicts the battle between Goddess Durga and the demon Mhaisasura. Like Ravana, Mhaisasura was almost invincible and extremely arrogant. The 9 days of battle are celebrated as Durga Puja and the 10th Day represents the victory of good over evil.
What is the common theme? In both instances, the opponent was powerful, arrogant and almost invincible. Despite the odds, the good triumphed over evil. For that to happen, both Lord Rama and Goddess Durga had to believe they could win. That would only happen if they drove away the demons from their mind.
What equity investors must imbibe from Dussehra?
Like in the two Dussehra legends, even in investing, it is the demon in your mind that keeps you away from success. The demon exists in your mind in the form of fear or scepticism.
Let us look at 4 such demons that investors must drive away from their minds.
1) Drive away the Demon of “Market needs to be timed”
Most investors stay away from equities because they believe stock market is all about timing. You need to buy low and sell high to make profits in stock markets. Just, drive that demon away from your minds. Stock market investing is not about timing the market but time in the market. Longer you stay, better off you are.
Consider the example of Sensex. It has grown from 100 to 61,000 in the last 42 years. If you had just invested in the Sensex, you money would have grown 16.5% annually for 42 years. If you add dividends, returns would be closer to 18% annually. You don’t need to time. According to studies, if you miss the best 4-5 days in the market over 10 years, you make less money than just buying and holding.
2) Drive away the Demon of “Equities are too Risky”
One reason investors avoid equities is that it is considered too risky. But that is a myth. Equities may be risky in the short-term, but that is not what equities are meant for. In fact, if you hold a diversified portfolio of stocks for over 7 years, the chances of negative returns are zero. But there is another aspect here.
The biggest risk in investing, is not taking adequate risk. If you put all your long-term savings in money-market funds or bank FDs, you are never going to get anywhere close to your goals. Drive away the demon that equity is risky. Over the long-term, equities are one of the safest and surest wealth creators.
3) Drive away the Demon of “I am smarter than the Market”
It is common to believe that you can outsmart the market, especially when you succeed on a few occasions. Unfortunately, the market is a great leveller. This tendency of being smarter than the market manifests in 3 ways. Firstly, investors try to average when prices are falling. If you were wrong once it is OK, and averaging is like being wrong twice.
Secondly, investors take profits too soon. The real returns in the market are in the long term by holding your winners for long. Lastly, don’t try to trade your way out of trouble. You can never recover losses by aggressively churning. The market has always been smarter than you and always will be. You must get rid of this demon from your mind.
4) Drive away the Demon of “I am the best doctor”
Equity investing is a job that requires skill and discipline. If you are confident that you have both the qualities, you can certainly invest on your own. However, it is always better to get expert help. For example, if you are trading in equities, you can always talk to your RM and the research team at your broking house.
You can also talk to your financial advisor to get a better grasp of allocation. The other alternative is to go through equity mutual funds route where you get the benefit of equity investing with diversification and expert fund manager skills. It is better to get good advice than trying to be your own doctor.
This Dussehra, you should make a genuine attempt to drive these 4 demons from your mind. Therein lies the secret of a successful equity investing journey.
We wish you a Happy and Prosperous Dussehra 2021.