Invest when you are not confident

The stock market is known to have rich folklore. Many a fabled investor are revered for their wealth creation prowess.

The great Warren Buffet is quoted at the drop of a hat and one of the most famous quotes attributed to him; “Be greedy when others are fearful, be fearful when others are greedy”, is quoted quite insightfully and authoritatively by many a stock market buff.

Closer home there are many diligent statisticians who update and share on WhatApp and FaceBook timelines about what would one have been worth had they bought Rs 10,000 worth of Wipro in 1980 or had they helped under-write the Infosys Initial Public Offering which was struggling to get filled.

By the way, if no one has ever forwarded this to you, then you need to get the right set of friends on social media, you are getting too many memes and jokes but not the relevant stuff.

The irony is that all this is cited, quoted, forwarded, printed only when the markets are booming. In times like today, when the greed and fear quote is most relevant, it is not only not followed, but quite, on the contrary, we become more fearful because others are fearful already.

At times like this one needs to remember that the Rs 10,000 doesn’t become a few hundred crores in a straight-line journey but by living through a series of troughs and peaks and in fact showing greed in the troughs could have shortened the journey to untold wealth by a few years.

We are currently witnessing once such phase where the returns for the last couple of years are poor and more specifically the returns in the last one year are in negative for the mutual fund industry.

Investors do not seem to have the confidence to continue investing or even remain committed to their existing investments. So the message is simple: in times like this, when past returns look bad, one has to become greedy.

Investors tend to invest when they are feeling very confident about the investment outlook.

And investors feel confident when the immediate past has been great. However, on the other hand, investors feel a lack of confidence when the immediate past has not been encouraging.

So let me tell you, your level of confidence has nothing to do with your future returns; if at all it has anything to do, it’s inversely related.

It might seem counter-intuitive but invest more when you are not confident and invest less or rather don’t invest when you feel supremely confident. It’s very important to understand where is the confidence coming from and most investors I know draw confidence or lose confidence based on the last couple of years of investment returns experienced.

So what is the right way to invest now? Its easier said than done when I say that invest a lot when you don’t feel confident. What one must do is to realise that every day in the markets is a new day and today’s price is today’s reality.

Ultimately, what matters is the fact that what is the return you are going to be making from the current price.

Yes, one must be concerned about the current value of past investments but one must also remember two things additionally – a dispassionate objective decision made today can improve the average returns on the previous investments and secondly, what one stands to make from hereon at today’s price has nothing to do with the past investments. To sum up, the mantra in investing into mutual funds is to keep investing regularly and ensure that all that folklore is not just folklore to be passed around, it is meant to be implemented and worked upon. If others are fearful, be greedy!

Don’t borrow their fears or add to them.