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Business News/ Opinion / Commit to long distance; kill the noise
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Commit to long distance; kill the noise

It might even be a good idea to start out slow with, say, a balanced fund, which gives you a fixed income cushion

Shyamal Banerjee/MintPremium
Shyamal Banerjee/Mint

It was raining cats and dogs when the alarm rang at 5am on Sunday morning; perfect setting for drinking a cup of hot coffee curled up in a comforter. But that’s not what the alarm was for. Lately, Sunday mornings have been reserved for long outdoor runs. After some hesitation about splashing through the streets in a pre-dawn pour, we decided to take the plunge. Our first monsoon run lasted 17km alongside the south Mumbai coast, with lots of cool breeze and intermittent rainfall.

What does my Sunday run have to do with personal finance? Not surprisingly (in hindsight), running long distance (and for some 17km doesn’t qualify!) is perfectly complementary to long-term equity investing.

‘Long term’ isn’t just a vague time period of staying invested for at least three years, as many distributors point out. Staying invested for at least 7-10 years means a higher probability that losses don’t occur. Historical data of 10-year returns for the S&P BSE Sensex, taken each month-end from June 2006 till May 2016, hasn’t ever dropped below 8% and has gone below 10% only five times. You may not hold on to the same stock or the same equity fund for that long, but don’t change your allocation. If it makes sense, sell one security before 10 years, but reinvest into another stock or an equity fund.

Now that we have established what long-term should be, let’s dig into why the two activities of running and investing are so well allied. To begin with, it’s unreasonable to expect that you will wake up one morning, and without any prior familiarity, just go ahead and complete that 10km outing. For the longest time I ran a maximum of 3km on a treadmill before graduating to 5km and then finally built the courage to do an outdoor 10km run. This took nearly three years. It takes time to build faith to go the distance. Investing is no different; for first-timers, it works to initially experience at least three years in an equity mutual fund. In fact, it might even be a good idea to start out slow with, say, a balanced fund, which gives you a fixed income cushion. Build your knowledge and awareness. If you are keen on direct equity, pick the obvious large-cap stocks first; don’t nosedive into mid-caps even if it’s in vogue.

As you increase the distance, or build your portfolio, make sure you are prepared to bear the consequence—knees are strong, you have energy, no weak muscles. Ideally, invest only with surplus; money you don’t need for expenses and contingencies. Being financially prepared can’t be ignored given the short-term volatility in equities. Else, injury before you complete the long distance is quite a possibility.

Why go the distance, you ask? Despite the hesitation in starting the run, when I finished, I really wanted to go on. The result of a good long run is the sheer euphoria caused by the release of endorphins. Now imagine how elated you will be at the end of 10 dedicated, disciplined years of investing, when you see that your wealth has grown. Historical data for domestic market shows that over 10-year cycles, equity has delivered annualised return of 15% (average month-end rolling returns for Nifty 50 and CNX 500). That means growing your wealth at least four times—reason enough for euphoria.

Long distance sounds good but it’s not all smooth. The first 2km are killing. Each time before starting out, the recklessness of subjecting my body to such physical strain flashes in my head. But is it really reckless or just an apprehension? Past the 2-3km mark, I want to pick up pace having forgotten all the doubt I had felt before.

For both running and investing, you need to warm up. Stock prices reflect corporate earnings, and those aren’t an overnight affair. Cash flows and earnings need time to grow and accumulate. So why expect stock prices to runaway (although that happens, it’s not a norm)? Are there risks or hurdles enroute? Sure. Running in the rain is a big risk. Running long distance on a regular day without being adequately prepared is also a risk. Running too long in high temperatures is another risk. Are you hydrated enough, rested enough before the run? Are your knees able to take the impact? You have to be prepared.

Investing in equity, too, is fraught with risks if you go in unprepared, without having done the due diligence. If you go by tips from friends or colleagues, and invest without doing any homework, chances are you will end up with a bad apple. We aren’t talking about a quick buck here; the aim is wealth creation, so be prepared. Look up performances of funds, read about the fund managers, go through fact sheets. For direct stocks, do the background financial research. I stepped up my knee-strengthening manifold when I started running more than 10km regularly. Take responsibility for where you are putting your money and then push ahead well equipped.

Joining a training group works well for many long distance runners; this way they have someone to tell them what’s right and what’s not. If you aren’t inclined to do some serious homework yourself, get an adviser who can guide you.

Let’s not forget the external shocks. Running on Mumbai roads means uneven surface, cars zooming by spewing smoke, rats scurrying past, and gravel to trip you. But all these are external to my run and my ability to complete the run. Brexit is an external shock; an accident that has caused a pile up of stocks on the decline all over the world. But if you aren’t directly involved in the accident, you’ll eventually drive through. Indian domestic equity investors are more like bystanders in the Brexit accident, looking from a distance, pausing to ascertain the impact and then simply continuing to run.

You must also ascertain your risk taking ability. How far can I push my legs? Another 2-3km? More?

Do you have the cash flow to sustain short-term capital loss? For how long? Define these limitations to indicate how much you need to invest in equity. An experienced runner knows to push only so far as to get the endorphin kick. She realises when to stop (well, mostly). Invest only the amount of surplus you are comfortable with so that your daily lifestyle isn’t affected, and be comfortable about how much risk that money will face.

The real reason why my previous Sunday’s run matched so perfectly with long-term investing is because I finally listened to my running friends. I killed the noise. For the first time I ran without the comfort of my iPod. I ran just as well; in fact, with much more focus. And this is the biggest lesson for long-term investors, too—kill the noise and stay focused on your path.

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Published: 30 Jun 2016, 06:22 PM IST
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