Every market bounce is getting sold. Investors are making a quick rush for the exit door every time the markets go up. Markets rise in the morning only to lose gains by the evening. Equity fatigue is probably only going to get worse with time.
Investors, who got in during recent years, are conditioned for a rapid, v-shaped recovery every time the market falls. This may not be feasible now. The markets may not do in the next year what they managed to do in the last two. This is bound to make new investors restive, impatient and reactive.
Institutional investors are also likely to be under pressure given the high recency bias seen in their portfolios. As the macros shift rapidly, they will need to chase benchmarks, buy stocks moving up, sell stocks moving down and somehow hope they are participating in the market momentum. This will increase portfolio churn, raise impact costs significantly and reduce performance. The institutional imperative is set to hurt investors in the near term.
But investors who are willing to expect lower returns in the near term will be able to build resilient, robust portfolios. Thinking beyond the present would mean being willing to wait for higher lumpy returns. But that is what a sensible investor must focus on right now. The market noise can be ignored, and all our focus be directed to exactly what we want to do with high conviction.
