I think the first thing that people have to realise is that investment in companies, in stocks is probably one of the best ways to save and grow. This is because companies grow with the market.
They have an objective of being profitable and of giving earnings to investors so that they can adjust their earnings with inflation and can take advantage of the benefits of growth in countries around the world. So I think that is one of the first thing you have to remember.
The second thing is that companies do not grow overnight. It takes time, usually a five-year timeframe for a company to set a goal and to reach that goal. So as an investor, you also must think of a five-year timeframe. Do not jump in and out of the market. Do not trade in and out. Try to look at the company very carefully. Look at the management very carefully and make a decision to invest. Perhaps, the best way to do that is on a cost averaging basis. In other words, if you want to buy 100 shares of a company, buy 5 shares this month, 5 shares next month and so forth. The price will fluctuate but over that time period you will get a very good average price. These basic principals one should keep in mind.
Please share the crux of your experience over the three decades with Indian investors. How can one beat the market?
I think the crux of the experience is to think long term. Do not think short term. Many of the mistakes I and my colleagues have made came from short term decisions which usually are not very good. Sometimes they are right, sometimes they are wrong.
But over the long term, we would have been better off making a decision after careful consideration and sticking with it. Also, we always think independently. I remember one person said to buy when others are selling despondently and to sell when others are greedily buying pays the highest rewards but that also requires great patience and fortune. That principal is very, very important for everyone.
What are some of the biggest mistakes investors make which hampers their portfolio returns?
The mistake that people make is to react to daily events. They pick up a newspaper and they read about something happening and they react to it too quickly without giving a thought to actually the meaning of this event. I think that is probably the biggest mistake people make. That is why, sometimes it is better to buy something and just go away. Do not read any newspapers for the next five years and you probably will do quite well.
So how does the investment landscape look when it comes to India because several investors are unable to invest abroad and so their universe is limited when it comes to India?
For India, the opportunities are incredible. There are tremendous companies in India with very smart management and people that are capable of acting on the world stage, not only on the India stage. But, investors in India must remember that it is a global market now. There are great companies in India but there are also great companies in other parts of the world as well. So you must think globally. India will not have the best emerging market performance year after year. That never happens. So you have to be diversified into many other markets to find the best opportunities.
What message would you like to give to Indian investors on the occasion of Diwali, which is also considered as the festival of wealth?
First of all have a good time at Diwali. Make your investments and then enjoy yourself during the celebrations and I believe if you are patient and do your homework, do your studies, you will do very well.