Investment Blog

Investment needs to be boring

If you seek excitement from your investment portfolio, you are doing it wrong.

One of my clients recently asked “Why don’t we invest in hot themes like AI, defense, and other growth stocks? Why only value-focused portfolios?”

I asked, “Why do you think we should invest in these hot themes?” He said “I feel we are missing out”

Classic – Fear of missing out 🙂

I told him that his investment portfolio is already generating excellent returns close to these hot themes but at a lower level of risk that suits your risk profile. Also, it will sustain performance better than these hot themes in the long term.

Despite the portfolio doing well, investors sometimes feel they are missing out on some investments because these investments are being discussed in their circle and they have nothing to contribute.

Many investors confuse the popularity of investment with good performance. That is not true.

An asset that is popular today has most probably already been chased by many leading to expensive valuations.

Expensive valuations lower the future potential returns while increasing the downside risks.

Popular themes continue to rally till the market narrative sustains. The day the narrative changes or the tide is turned, investors suffer maximum losses in such hot themes.

One shouldn’t be distracted from the stated objective of investment aligned with the risk profile.

If the objective is to make 15-20% returns over the next 10 years at lesser volatility, then it’s important to construct a portfolio that will help us meet these objectives. Whether this portfolio contains a hot theme or sector or not is immaterial.

For successful investing, one must avoid noise and distractions.

Like Paul Samuelson said – ‘Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.’