A few days ago, I had a very unusual request from the HR of a multi-billion dollar company with whom I was in discussion regarding sessions on financial well-being for their employees.
She asked me- Can your company provide training on stock trading to the female employees?
Since we have expertise in long-term investment strategies and financial planning, I told her that we could not help her with this requirement.
The next thought in my mind was why she was making this unusual request. I reasoned with her about why she wants her employees to learn to trade. Instead, trading is not just dangerous for the financial & psychological health of most individuals but also distracts employees from focusing on their core job during office working hours which reduces productivity and harms the company.
The other day, I was stopped by a security guard who saw ET in my hands and asked me for my views on a few mutual funds SIPs that he was doing. On one hand, I was happy that many apps have enabled even investors with minuscule savings to invest in the market but on the other hand, I realized the person picked schemes just based on past performance with dominant holdings in mid & small cap schemes. I was worried thinking about the situation when the markets would crash, would he continue to run his SIPs?
I am also seeing an increasing exposure to equity even in those portfolios where investors have a very low-risk appetite.
Thinking about all this, I felt I had read about this and observed it in 2007. During times of euphoria and bubbles, a huge number of retail investors want to invest in the stock market. People with little understanding of investment risks, want to ride the market wave for quick returns after hearing the stories in their circle.
I am in no way saying we are certainly in a bubble. Neither, I am implying that markets will go into the correction mode in some time. No one in the world can predict when the correction in the markets will happen. John Maynard Keynes famously observed that markets can stay irrational for longer than you can stay solvent.
However, I would insist on following an asset allocation plan with discipline, which is unaffected by the emotions of greed and fear. Certainly, we believe the markets are expensive and the risk-reward ratio is not favorable. Asset allocation should follow probabilities of future outcomes along with risk profile. Therefore, the current asset allocation shouldn’t be too exposed to risky assets. There is still reasonable value in large-cap value stocks. But, a portfolio should be a mix of different asset classes like equity, debt, and gold.
Nobody knows when the axe will fall, but when it does, the prepared ones will not feel much pain and continue their journey of long-term wealth creation. For the unprepared ones, I would wish them great luck.
Originally posted on LinkedIn: www.linkedin.com/sumitduseja
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