Pictures are merited for its ability to portray 1000 words with a stroke of 1 brush. Tell us what you take away from the graph below:
Do you see what we see? Yes, we are talking about how FII’s not only stayed invested during the peak pandemic months but also bought more dough when the bakeries were on the verge of closing shop.
In paying homage to 2012, worries rekindled about the (economic) world coming to an end as the countries received their report cards after having waded through the 1st quarter of Covid crisis.
This is what we had in store:
When everyone was rushing for exits, FIIs endorsed the worlds most successful investor, Mr. Buffet’s evergreen words, “Be Greedy When Others Are Fearful”. They did this for 2 simple reasons.
- 1. 1st Reason – Markets Habit Of Self-Sustenance
We have talked plenty about the need of staying invested in times of trouble to make your gain double. And this graph explains why.
It shows why the markets give ‘paise’ to all-wise FIIs, and ‘pain’ to all-noise DIIs.
However, it is the 2nd point where which highlights the fallacy of premature exits without having a mature (defined) entry point, or rather, re-entry point.
- 2. When 1 Door Closes, Another Opens….Or Does It?
From the 1st graph, we saw how FIIs kept buying when DIIs kept crying, but we didn’t focus on the why…till now.
Another key element in the graph was the right-side axis, which highlighted the Avg. Market Returns vs return potential sourced via investing in more traditional instruments.
As can be clearly seen, even with Coronavirus at its strongest, the markets managed an Alpha of 1.5% more than safer instruments. Yet as we learn from the virus, it is very few who earn, with others carrying the “Big L”. Read on to know why!
Investors, in their best attempts, often enter markets when the euphoria is already high and exit when upside fervor turn to downside fever. However, it is in their attempt to exit haphazardly where they lose most of their money.
Focusing only on entry points is like looking at a half-pained picture. The other side of the coin is re-entry, for If there is no re-entry, then there is no coin. Even a participation prize requires you to participate.
As you get more fluent with “Re-Investment Risk”, you will develop a more nuanced market behavior.
Investors often cite market volatility as the prima-facie reason for their exits and in turn seek safter instruments, assuming markets will not give but dive during their investment horizon. However, Our math tells us otherwise:
As can be seen, investors who re-invested smartly garnered higher returns for their investments than those who panicked. The investor who didn’t plant their exit strategy found themselves short-changed on returns, whereas those who invested and re-invested in-line with their plan of action yielded smarter results.
There’s a reason rocket engineers say, the rocket has to exit the planet 1st, before they focus on entering space. It’s the same with your investments. If you wish to see your returns rocket, then you have to fuel up well ahead in time, navigating volatility with a focused and objective blueprint.
As we say within the walls at Fisdom, “To Have A Window Of Opportunity, You Must Make The Window First”.
The dilemma for Entry-Exit-Re-Entry will always be relevant for as long as Markets continue to exist. Hence, it is imperative that investors realize re-entry strategies to realize returns.
We at Fisdom, will continue to educate you on markets and its various anticipation and actions. From emotion to ego-tion, we are there to address it all by being only a download away! Available on App Store and Play Store – Download Today!
If you wish to share your inputs or like us to write a piece on a topic of your choice, do write to us! We eagerly await to hear from you.
