In bad markets, one clearly visible tendency is to start thinking in “What if” mode. When returns look below expectations, we want to think that we could have done better. So, we think of what we did not do in the past and wonder if that was the better choice over the ones we made. In investing this happen very often. When equity performance underwhelms us we ask “what if we had put our money in a fixed deposit instead?” This question is delusory because it leads us to think that shifting from equity to fixed deposits in weak stock markets is a good thing to do.

History also saw us do the opposite. When Fixed Deposit returns were at 9%, we saw people shift to an equity product called hybrid funds (a.k.a balanced funds) seeking 1% returns per month. The results in such knee jerk investing have always been, to put it mildly, very ordinary. Those who shifted from fixed deposits to hybrid equity funds have done very poorly. They should have thought beyond the immediate and strategised. They chose bad tactics over smart strategy.

Investing is not a rat race. The race is slow and tedious. If we hasten it and add a rush of blood, we lose our fix on future returns and act in a delusory way. When interest rates are going to be trending down and staying soft, equity should usually benefit with a lag. Beating that lag with rushed decisions is delusory. Fixing one’s delusion is the only way to fix returns. Good strategy will always beat bad tactics.

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