Lessons from 2018: Don't be greedy, continue your SIPs to build a corpus

Investment consultant Arun Kejriwal has a complaint with stock market investors: “Most do not realise that there is an unlimited number of opportunities in the stock market. But the money they have is limited. And they have to maximise their returns with that limited amount.” 

According to him, there was a strong buzz that the government might bite the bullet on capital gains tax in January itself. Most investors, especially in the mid-and small-cap space, were sitting on significant profits at that time. But they refused to sell, or lower their exposure. “When the Budget declared that the capital gains tax was being imposed, this segment took a serious knock. This, along with the Securities and Exchange Board of India’s diktat to reclassify large and small-cap funds, led to serious losses. If investors had booked profits earlier, they would be sitting on huge profits and could have been able to invest in good stocks when the market fell,” he adds.

Don’t be greedy: When you buy a stock, especially a mid-and small-cap one, have a price target. Once you hit the target, exit the stock. There is no point in waiting for more in the hope of making more money. Things can go awry, as it did in 2018. The Nifty mid-cap 100 and Nifty small-cap 100 fell 15.4 per cent and 29.1 per cent, respectively.   

Continue with SIPs: If you are one of the investors who continued with their systematic investment plans (SIPs), congratulations. Continue with this habit in 2019 as well. There is a good reason, too. Despite the high volatility and selling by foreign portfolio investors, fund managers were able to ensure that markets did not tank. FPIs were net sellers of Rs 33,161 crore in equities, where mutual funds invested as much as Rs 119, 844 crore. The year ended with the benchmark indices — the Bombay Stock Exchange Sensitive Index, or Sensex and Nifty-50 — closing up by 5.9 per cent and 3.2 per cent, respectively. Says Nilesh Shah, Managing Director, Kotak Mutual Fund: “For investors, the key to making money remains long-term investment, regular investment and disciplined asset allocation. This may be slow and uneventful, but it will be a sure journey to become wealthy.”

Limit exposure to small-and mid-cap: No one says that one should not invest in these stocks. 2018 was the first in the past five years when the indices representing mid-and small-cap stocks fell. Between 2014 and 2018, these indices gave 50 per cent plus returns twice. But when one goes overboard, it can cause a lot of pain. Also, don’t buy trader-driven stocks, even if there is a recommendation. “When you invest in low-governance stocks, there might be instant gratification, but eventually there is a loss of capital. This was illustrated forcefully in 2018,” adds Shah.