ETMarkets.com| Jun 19, 2017
The stock market is like a boxing ring, says Nilesh Shah, MD of Kotak Mutual Fund. If you enter the ring with the hope that you will not get hurt, then you are never going to win the match, because you will be running away from your opponent and finally the referee will say ‘hell with it’.
“So if you are entering the stock market but not willing to take a downside, then please do not enter the market. It is not a place meant for you. First, have the maturity to take a loss, then you can make money,” Shah said in an interview with ETNow.
We picked some wisdom and investing tips from the interview verbatim.
Thumb rule for entering the stock market
You should read the Ramayana, because it is written how to make money. I am sure, all of you have the Ramayana, but you should not read it like the Gujju bhai. In Ramayana, which was the richer city, Lanka or Ayodhya? It was Lanka; it was gold-plated. How did Lankans become so rich? Because they invested like Kumbhkaran; they invested in the equity market and slept for 14 years. That is why they became rich. There, Ramayana has given you a solution.
Stocks that have fallen 99%
True, Lanka jal gaya tha, but when? When you went and picked that stocks that were leveraged, when you went into bed with a bad promoter, When you went and picked that stocks that were leveraged, when you went into bed with a bad promoter, when ..
So, should you always buy bad news?
In life, you always get an opportunity to score. Let’s take the example of a cricket match. Did Sachin Tendulkar become Sachin Tendulkar because he got all the half-volleys to hit for a fours and sixes? Of course, not. He got opponents who were throwing bouncers at him to kill him; they would have loved to injure him, but Tendulkar survived those bouncers and that is why he came Tendulkar. So if you think in the pitch of life or stock market you are only going to get half-volleys and you will hit them for fours and sixes, that is never going to happen. You are going to get bouncers. Which is why I said, if you cannot be Eklavya, you should stay with mutual funds.
Watch the Sensex daily or do SIP and sit?
Today the mutual fund industry has reached a level where all of us have worked together to create a long-term investment culture. I will give you an example. I went to RPG House office and there was a watchman who was looking at me and I could sense that he was looking at me. But I ignored him to move forward, meet the CFO and came down and then this guy said you the person who is coming on television. Now when a watchman says he has started an SIP, then I have done something in life.
Wealth creation
Go and attend any good company’s AGM, and you will rarely find a person coming and congratulating the company top brass for the stock performance. The amount of wealth created by the good companies in India over the past 25 years is mind boggling. I will show you the example of InfosysBSE -1.17 % versus MastekBSE 1.09 %, 425000% return, it is not a small number. So long-term wealth is created by long-term investment and we are lucky to be born in this era. In my career, I have seen India grow 10 times from $200 billion to $2 trillion. I do not think there will be generations like mine who will see 10-times growth in a country.
Importance of regular investment
First is the acceptance of the fact that you do not know where the market will go. So, the moment you realise that, you get the benefit of regular investment. All of us do regular investment for our physical health, we take breakfast, we take lunch, we take dinner. I have not seen a person who eats for seven days at one go and then uses his time for the next seven days for productive activity. So what you do for physical health, you have to do for financial health; you have to have your breakfast investment, lunch investment, dinner investment. Now do not confuse that with day trading, I am talking about monthly SIPs
Importance of asset allocation
So asset allocation is basically the skill of creating a balanced diet. And you know if you see our culture, our home food, home thaali has a balanced diet. It has daal, roti, chawal subzi and some people like desserts and some people make dessert main food like gujju bhais but that is what we do physical health, a right mix of protein, carbohydrates and other things put together it gives you taste as well as health.
The same applies to the asset allocation in investment. You need some equity which will create growth; you need some fixed income which creates stability; you need some gold which gives you hedge against something going wrong in the country and giving global currency return; you need some real estate because that is also an asset class, which can give you stable return. So create an ideal balance of real estate, gold and other commodities, fixed income and equities and that will ensure that you are consistently making money, you can ride the volatility of the market and that creates wealth.
The stock market is like a boxing ring, says Nilesh Shah, MD of Kotak Mutual Fund. If you enter the ring with the hope that you will not get hurt, then you are never going to win the match, because you will be running away from your opponent and finally the referee will say ‘hell with it’.
“So if you are entering the stock market but not willing to take a downside, then please do not enter the market. It is not a place meant for you. First, have the maturity to take a loss, then you can make money,” Shah said in an interview with ETNow.
We picked some wisdom and investing tips from the interview verbatim.
Thumb rule for entering the stock market
You should read the Ramayana, because it is written how to make money. I am sure, all of you have the Ramayana, but you should not read it like the Gujju bhai. In Ramayana, which was the richer city, Lanka or Ayodhya? It was Lanka; it was gold-plated. How did Lankans become so rich? Because they invested like Kumbhkaran; they invested in the equity market and slept for 14 years. That is why they became rich. There, Ramayana has given you a solution.
Stocks that have fallen 99%
True, Lanka jal gaya tha, but when? When you went and picked that stocks that were leveraged, when you went into bed with a bad promoter, When you went and picked that stocks that were leveraged, when you went into bed with a bad promoter, when ..
So, should you always buy bad news?
In life, you always get an opportunity to score. Let’s take the example of a cricket match. Did Sachin Tendulkar become Sachin Tendulkar because he got all the half-volleys to hit for a fours and sixes? Of course, not. He got opponents who were throwing bouncers at him to kill him; they would have loved to injure him, but Tendulkar survived those bouncers and that is why he came Tendulkar. So if you think in the pitch of life or stock market you are only going to get half-volleys and you will hit them for fours and sixes, that is never going to happen. You are going to get bouncers. Which is why I said, if you cannot be Eklavya, you should stay with mutual funds.
Watch the Sensex daily or do SIP and sit?
Today the mutual fund industry has reached a level where all of us have worked together to create a long-term investment culture. I will give you an example. I went to RPG House office and there was a watchman who was looking at me and I could sense that he was looking at me. But I ignored him to move forward, meet the CFO and came down and then this guy said you the person who is coming on television. Now when a watchman says he has started an SIP, then I have done something in life.
Wealth creation
Go and attend any good company’s AGM, and you will rarely find a person coming and congratulating the company top brass for the stock performance. The amount of wealth created by the good companies in India over the past 25 years is mind boggling. I will show you the example of InfosysBSE -1.17 % versus MastekBSE 1.09 %, 425000% return, it is not a small number. So long-term wealth is created by long-term investment and we are lucky to be born in this era. In my career, I have seen India grow 10 times from $200 billion to $2 trillion. I do not think there will be generations like mine who will see 10-times growth in a country.
Importance of regular investment
First is the acceptance of the fact that you do not know where the market will go. So, the moment you realise that, you get the benefit of regular investment. All of us do regular investment for our physical health, we take breakfast, we take lunch, we take dinner. I have not seen a person who eats for seven days at one go and then uses his time for the next seven days for productive activity. So what you do for physical health, you have to do for financial health; you have to have your breakfast investment, lunch investment, dinner investment. Now do not confuse that with day trading, I am talking about monthly SIPs
Importance of asset allocation
So asset allocation is basically the skill of creating a balanced diet. And you know if you see our culture, our home food, home thaali has a balanced diet. It has daal, roti, chawal subzi and some people like desserts and some people make dessert main food like gujju bhais but that is what we do physical health, a right mix of protein, carbohydrates and other things put together it gives you taste as well as health.
The same applies to the asset allocation in investment. You need some equity which will create growth; you need some fixed income which creates stability; you need some gold which gives you hedge against something going wrong in the country and giving global currency return; you need some real estate because that is also an asset class, which can give you stable return. So create an ideal balance of real estate, gold and other commodities, fixed income and equities and that will ensure that you are consistently making money, you can ride the volatility of the market and that creates wealth.
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