You never know what lies ahead in equity investing. Yet, you need to show confidence in the asset class when others don’t. In March, you should have been greedy when others were fearful. You should have allocated money to equity when the markets were worried about the steep fall. You should have taken advantage of the all-around fear in Indian equities and scaled up your portfolio. But, this is easier said than done.
When everyone thinks buying can wait, you must show urgency to buy. Advisors and managers are responsible for making investors understand this urgency. To achieve a complete buy-in from investors, advisors and managers must first be fully convinced themselves. Unless the buy-in is total and involves complete skin in the game, advisors or managers will never convince investors when they really need to. A credibility gap will always keep investors away from acting in their best interests. To succeed in equity investing right now, investors, advisors, and managers must eliminate this gap.
Increased market volatility and the risk of a widening confidence gap will weigh on investment performance. If investors do not adequately trust managers, they will doubt the potential of even the best investment opportunities. The trust deficit will seriously affect investor participation in equities. This lack of adequate conviction is now causing widening trust deficits, unwillingness to add cash into equity portfolios, and disappointment with performance. This gets in the way of every investor doing what is right for their portfolio and good for improving performance. These are realities which investors are ignoring when they should never do so.
As we saw in March, the opportunity to scale up equity will come in short windows of time. Every opportunity will present specific investment choices in market segments. Missing those opportunities will be very costly, as an investor will never get them again.
In March, investors watched many such opportunities without taking advantage of them. What investors must learn this financial year is how to avoid repeating this. Spotting opportunities in every crisis, participating in them, choosing exactly where to invest, and deciding how much money to allocate – these are clinical actions every portfolio will need in such a difficult year.
Advisors and managers must convince investors of the right path they need to take during a difficult phase for equity investing. Once investors adopt the right mindset, develop the right behaviour, and adequately raise conviction, they will be better positioned to participate in every correction. If this is achieved, investors who missed investing in March will never let self-doubt or a lack of conviction prevent them from investing in every crisis. As volatility increases, every investor’s top priority should be taking advantage of market swings.
