The Hindu Business Line : Did you make money or create wealth?

The recent equity market rally has caught a lot of people by surprise, whether they are investors, brokers, or seasoned fund managers. In fact, many have dismissed this rally as not sustainable, while reasoning why they weren’t able to catch the trend early on. In a short span of a couple of months, markets globally have witnessed a surge of 30-50 per cent. Indian markets too have witnessed a sharp rally having risen over 40 per cent post March.

While a lot has been written about how much would have an investor gained had he/ she invested in the best performing stocks in the last two months, the question is: how prudent was the investor?

Given the global financial turmoil, would anyone have risked investing huge monies in the equity markets in the last couple of months? Leave the hindsight for a moment, just go back to the environment in March and ask yourself if it was a good time to risk a new investment? You would probably not be alone in saying you saw no rational reason in doing so.

Even, if for a moment, one were to assume that someone had the courage to invest a lump sum (not more than Rs. 10,000 – 20,000) in one shot, around early May? An investment of Rs. 10,000 in the BSE Sensex in March would have fetched 50 per cent returns, and the investment would have grown to Rs. 15,000 today.

A roller-coaster ride?

While these are spectacular returns, by any reckoning, does the corpus (of Rs 15,000 in the middle of May 2009) represent wealth? To put it bluntly, where does one go from here? It is fairly obvious that the investor may not get the same kind of run every time, and the law of averages suggests the next big move may be down rather than continue in the upward direction. So, in terms of wealth generation, are you on the course of sustained wealth creation or a roller coaster?

A savvy investor would reason that getting money into the kitty like a high tide/ low tide flow only to see it ebb is not wealth creation or accumulation. It is time to get back to basics: Wealth generation is a process of disciplined investing which focuses on the financial goal rather than the market or economic situation.

Consider this: if one had started to invest Rs. 7,500/- every month in the BSE Sensex on the 24th day of the month since October 2008, he/ she would have accumulated Rs. 68,623/- as on May 09.

Remain steadfast

It’s quite evident that for an intelligent investor, the disciplined approach of investing a small amount, on a regular basis, goes much farther than trying to time the markets.

The latter course of action is contingent on immense amount of consistent good luck, but that too will not take you very far. If you do happen to invest at the right time before a rally, the total gains may still not be substantial given the size of the principal invested.

To be sure, the Indian markets have matured immensely over the last two years. Investors have come to agree that volatility is an integral part of traded asset markets, and that it is unlikely that we will see a sustained, one-way, bull phase for some time.

The only rational way to creating sustainable wealth in choppy conditions is to remain steadfast to the purpose, and keep investing a small amount every month with rigour and conviction.

(The author is CEO, Mirae Asset Global Investments, India.)

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