Unusual are the times! 2021 to 2022… Let’s be prepared

The beauty of a wonderful piece of writing or any creative work for that matter is that, it amazes you to an extent that freezes your thoughts for some time. “Missing” – a year end note from one of the most competent money managers in the Industry did exactly that, when I started penning one 10 days back. It engulfed my thoughts so much that I got trapped in a world where penning my thoughts sounded the most difficult task. It was unusual.
 Chennai witnessed one of the wettest years in history.  It rained non stop for a little more than 5 hours day before yesterday. Unusual again. We have seen superheroes with masks but not a family member or a neighbour wearing one on a daily basis. Unusual isn’t it? NIFTY mid cap index and NIFTY small cap index delivered annual returns of ~45% and ~58% respectively. This too is unusual! 

When you go through this, it may be the first day of new calendar year 2022! This is not a prediction for the year ahead. Let us leave it to the erudite! These are random but worthy thought bits packed in a single but long note resembling a ‘Madras Mixture’.   

High conviction & low expectations : In the epic Ramayana, there is the story of Shabari who was taken as a disciple by Sage Matanga. 

One day when Sage Matanga was very old he called his disciple Shabari and said “My Daughter, I’m leaving this body, is there anything you want me to do for you?” Shabari prayed “Lord take me with you to the highest abode you are going. I cannot live without you”. Sage Matanga said “One day Lord Rama will come to see you, until then stay alive, after that you can come to me”

Shabari stayed alive in anticipation of Lord Rama. She would get up early morning every day and go to the forest to collect the berries to serve Lord Rama. She didn’t know when Rama would come. She would go to the forest and collect berries every day. In that manner she spent many years. It should be recalled here that   Rama’s father Dasaratha was not even born then. This is the best example of high conviction or strong belief. The stock market has the capacity to test your patience and belief and this year could be one!

From the lows of March 2020, the stock market witnessed a phenomenal run for the past 21 months. Barring a few, most of the mutual fund schemes delivered returns that were way above the long term averages. So was the case for individual stocks. Many stocks had turned multi baggers. Investors who were patiently waiting since 2018 had a litmus test in the month of March 2020. The tenacious ones had a rich haul in 2020 and 2021. The faint hearted left way too early and the greedy ones joined the party too late! Historical data suggests that market returns are not linear. Will this bull run continue in 2022? (We should check with the erudite!). As an investor, I have set my return expectations low for 2022 as compared to the previous two years. I would highly recommend you to keep your return expectations low. Having said that the focus should be on the next 5 to 10 year period that offers huge potential for good returns. In the previous decade, there were 4 calendar years when the returns were either negative or less than 8%. Despite that, my own retirement portfolio of mutual funds delivered 18.20% compounded. Stay high on conviction for the decade ahead and low on return expectations, for the year ahead. 

An important lesson : In April 2020, we all witnessed the unusual winding down of 6 debt schemes by Franklin Templeton. A fund house that was trusted by many since the 1990s had many questions to be answered. From the date of announcement till this date, more than 100% of the money got repaid. There were many narratives carried out by both the conventional media and the new age social media. Many deviations were believed to have been taken by the fund house. Lots of blame game happened.  Front pages of popular business dailies carried daily coverage for some time. With money repaid, now no body is interested in the narrative of how much money was repaid. The most important lesson for you and me as investors is media does not want your financial well being. They want some hot controversial stories that can bring more readers or viewers. We should not stop reading such stories but take the firm decision of not falling prey to such stories before getting to know the facts through a trusted source. 

Money making is not that easy : If you had invested in a few IPOs in 2021, you would have seen gains to the tune of 60%, 80% or more than 100% too. I clearly see a trend of increased allocation by investors to IPOs and stocks. If adequate study is made and invested, there is nothing to be worried. Else, throwing caution to wind and going based on one or two years of experience is like believing the short term is likely to prevail in the long term too. This is very dangerous and money making in the market is not that easy. Asset allocation, is the key to achieving your medium and long term goals. Get a grip on the evils of GREED and FEAR.

Are you recommending crypto? This is a question frequently asked these days. As disclosed at the beginning, these are unusual times and tough to answer such questions when this space is not yet regulated in the country. In the absence of a regulator what should we do when something goes wrong is a question that remains unanswered. Hence, I am not personally investing. This does not mean I will stay away forever. A regulator gives me the comfort and I do not take risks that I do not understand in full. I am fine investing in an asset with reasonable returns of 15% compounded with known risks, than something which promises huge returns but more risky. My fight is not with the greedy ones but with inflation. Hope you too are not fighting the greedy!

It is time to lay bricks one by one. While many are focused only on the wall, the attention given to laying one brick at a time ensures the wall is built strong. Investing is a game that tests our patience in the short term & conviction over a longer term. If we are willing to be tenacious and take the support of a well wisher, the journey will definitely be an enjoyable one.

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