The Party is still on...

Don't miss this one. And use the regular investing mantra—it still works

For each 1,000 points that the Sensex soars, the collective heart of household savers and investors sinks a few notches more. With under 5 per cent of the household savings in the market, the average retail investor has watched the party from the sidelights. As this market gallops ahead, it gets increasingly clear that the rhetoric of the index collapsing back to 4,000 has been just that. Empty rhetoric. But we’ve not been totally left out of the ongoing mass affluent urban Indian party. As employees, we’ve made great career moves and got better jobs and higher hikes. As consumers, we’ve celebrated with our shopping baskets—our purchase list now shows more comforts and luxuries and a smaller proportion goes towards basic food.

While we’ve made the transition into behaving like workers and consumers of an economy growing at 9 per cent, our investment habits remain ancient. Even those who invest in stocks find that less than 10-15 per cent of their total portfolio is in the market. A large chunk that we forget to include in our asset allocation is the contribution to provident fund—a good 24 per cent of our basic salary. Almost a quarter of our monthly surplus is growing at 8.5 per cent. The Sensex returned 51.34 per cent between 1 November 2006 and 1 November 2007. One calculation shows that the provident fund money condemned to earning risk-free returns would have done upwards of 22 per cent in the last three years had a small part of the total corpus been invested in an exchange-based index fund. Clearly, an upgrade is needed in our investing habits. The fear factor today is: are the markets too high, should we be getting in at these levels? These questions was asked each time the Sensex breached 1,000 points from 6,000 points onwards. The question is valid for a bullet one-time investment, but for those with ongoing investment plans, there seems to be little reason to suddenly liquidate all investments and sit on cash.

With growth rates predicted to continue in the range of 8 to 10 per cent a year for the next decade and more, it's still not too late to participate in the bull run. What to do now? Pull out the simple boring wisdom once again. Apportion a part of your money for stocks—directly or indirectly—and invest in the market every month, irrespective of where the market is. And stay away from the three emotions that cost big money. Remove fear, the biggest reason why we are missing this party. ‘What if my money loses value?’ is the question that first-time investors ask, but remember, nobody builds wealth by zero-risk investing. Remove greed, which accompanies sure-shot stock tips. The greed for quick, no-effort money has pushed many to take risks that far exceed their risk appetite. The market usually punishes greed. Remove overconfidence. Small successes at the beginning of the investing career make people take the rapids without adequate training, saying: I can beat the market. But it is the market that usually beats them. What do you need? Level-headedness, stability, commitment and hard work. Just good old boring stuff that still works.