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Plot no. 129/1 Industrial Area Phase 1, Chandigarh


  • Varun Pal

Mastery of investments: Objectively decoding the madness around the market

A successful investor follows specific critical rules to attain financial success. A sound investor with a strong investment mindset finds avenues to hasten wealth-building by incorporating compounding principles and portfolio management practices to achieve the desired returns. Every investor has a certain investing strategy which should focus on long-term goals and wealth building.  People fall into the trap of futuristic or groundbreaking ideas that can help them build wealth overnight. No one is willing to devote time and incorporate investment habits which pay dividends in the long run. Financial literacy is the epitome of successful investors. Companies such as HUL, Reliance, and Infosys have created value and aided in wealth building due to strong fundamentals in place and ensured financial success.

Investment mastery lies in the subtle art of portfolio management and its diversification from time to time, keeping the long-term goal in mind. By putting all of your eggs in one basket, you are not risk-hedging and are leaving yourself up to the whims of macroeconomic headwinds and unforeseen events. Investment mastery is a totally different art all together. Robust data, along with investment discipline, should back decisions. Intuitions should not take precedence over logical decision-making backed by tools and mathematics.

Investment mastery lies in hedging your downside and maximizing risk-adjusted returns over a broader span of time. This strategy ensures financial success through robust portfolio management practices involving stock, equity and debt mutual funds, bonds etc.

Cost and timing of execution of your portfolio are integral to your overall portfolio management. As a successful investor, it becomes extremely important to have a cost-benefit analysis of your portfolio. This, in turn, will ensure whether you are on the correct path or not. Suppose you invest in certain instruments where the costs are extremely high and prohibitive, and the kind of average return you get does not compensate for the high fees. Such instruments or funds become very dangerous to navigate, and it becomes worth it to tread the lines with caution even if there is a hypothetical chance of getting a high return. Timing of execution is key to wealth building. A successful investor should know when is the ideal time to execute a stock trade and, similarly, what should be the ideal stop loss in order to limit the downside. Financial literacy comes with years of practice and getting your fingers burnt in order to get a real sense of how, why and when markets behave in typical patterns. This needs to be mastered over due course of time.

Financial success also comes from the knowledge of taxes and how the entire tax landscape gets configured with respect to your holding term, instruments and returns. A very useful example is in relation to capital gains tax in securities. If you liquidate your portfolio before 1 year, high taxation gets levied and reduces your post-tax returns. While if you hold your portfolio beyond 1 year, the effect of taxes gets reduced drastically. Indexation benefits in bonds also accrue in the long term. It is applicable to long-term investments and helps in the rejigging purchase price of investments in debt funds and other asset classes. A successful investor can take decisions in portfolio management by doing an in-depth analysis of taxation effects on gains that are realized.

One of the key aspects of defining a successful investor who focuses on wealth building is perseverance and rigor. Investment habits which incorporate patience to hold securities over long term has its associated benefits provided the rigor in the research while selection of portfolio has been thorough and has taken into consideration various scenarios. Once that is done in a streamlined manner, minor or major fluctuations should not bother you as you have arrived at a valuation which has been well thought through and has robust and fair assumptions in place. Sectoral disruptions are common but it should not dent your spirit and force you to realign your strategy every time you encounter a headwind. Wealth building relies on the magic of long term compounding and the more your portfolio gets tweaked, the harder the impact is on your overall returns.

A successful investor through financial literacy and extensive research is able to spot unique selling propositions of the company he/she has put his/her bet on. In an ultra-competitive market, it becomes paramount to look for unique trends which differentiates a particular company from others. Fundamental analysis of such paradigm changing ideas will help us in realizing extraordinary gains over the long term. Short term trends, stock tips, references from untrustworthy sources will not result in financial success. A final piece of advice is that a successful investor should never become too emotionally investment to the holdings. It is always a better strategy to rely on sound mathematical analysis rather than intuitions or signals from your heart. Any portfolio instrument should be looked at objectively and a robust risk-reward matrix should be calculated for mastering the art of investments.

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