Samuel Gompers was a veteran trade union leader in the US. He was interviewed by a journalist, who asked him, “Mr. Gompers, you have been a union leader for decades. What exactly does labour want?” Samuel Gompers replied “More”. This sums up everybody’s aim, in the market as well.
Scams occur when someone wants “more” than what he legitimately deserves. In India, we seem to be in a season of scams and corruption right now; making it a real cold winter in the stock markets.
Investing is basically putting aside money today to get “more” tomorrow. This can be done in a number of assets like land, real estate, gold, art, fixed deposits, debt, etc. A common method of creating wealth is through investments in the capital markets through equities with returns through dividends and stock price appreciation.
In India, historically, scams have not bothered seasoned investors. To them it’s more an opportunity as after an initial sell-off the markets regain their historical valuation metrics. Over long periods of time, markets are driven by earnings and not sentiments.
There are only two ways of wealth creation through stocks-trading and investing. For a trader ‘price is God’, the rest is irrelevant. While wealth creation by trading is alluring, its results are not heartening (98 per cent traders lose their capital). During short term volatility (as in scams), traders benefit from contracting P/Es. Investors by contrast, shouldn’t bet on P/E expansion but on earnings expansion. As long as earnings remain intact, investors should be holding their stocks, using any opportunity to buy on corrections.
For an investor, even after the number of scams in the recent past, there are many examples of companies that have delivered healthy CAGR returns led by growth in their earnings. Companies like HDFC, Nestle, Infosys, etc have delivered more than 25 per cent per annum over long periods.
Investing would never go out of fashion. Quality also never goes out of fashion. Unearthing of scams would only create better investment opportunities. The country is in a hyper growth phase for the next few decades and no investor can ignore that opportunity. Corporate governance standards have improved significantly over the last decade and would continue to improve further. Investors have to be vigilant and stay focused on long term investing with a clear focus on quality of management / businesses they buy.
For those investors who do not have the skills to evaluate stocks, there are a wide variety of funds, ETFs or customised PMS services.
As Warren Buffet has said “An Investor has only to do a small number of things right and avoid major mistakes to be outstandingly successful”. May we all avoid those major mistakes!
The author is MD & CEO, Motilal Oswal Asset Management Company
