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The most important thing to consider when managing mutual fund, stock portfolio

Markets and economies normally operate in various cycles and thus whenever we look to invest, we must have a minimum 5-7 year holding period.Premium
Markets and economies normally operate in various cycles and thus whenever we look to invest, we must have a minimum 5-7 year holding period.

  • If the funds and stocks in which you are investing have their fundamental thesis intact, you must consider increasing your investments. Investing is always simple, but never easy. Managing behaviour is extremely important and rewarding

I started my investment journey last year by investing in mutual funds and stocks after talking to friends and reading online. As the markets rose, I kept on adding more money into the funds and stocks and I was excited by the great returns. But the recent fall has completely spooked me and my portfolio has also significantly corrected from highs. The initial euphoria of investing and earning returns has been replaced by fear and noise regarding interest rates, massive correction from hereon, back to FDs and so on. Despite having received a bonus and an appraised salary, I have stopped investing. To add to that, I am also seriously considering selling my current holdings. What should I do?

- Krish

(Query answered by Tarun Birani, founder and CEO, TBNG Capital Advisors.)

You are displaying the classic herd mentality where you are simply investing based on how the momentum of the market is. While we must appreciate your desire and initiative to invest at an early age, you must also be equally disciplined towards investing during both bull market and bear market.

Power of Long-Term: Markets and economies normally operate in various cycles and thus whenever we look to invest, we must have a minimum 5-7 year holding period. This will help him navigate various cycles and he will be able to build a sizeable and chunky corpus with good growth in the portfolio

Making a Financial Plan: There is a famous saying, “Markets can remain irrational longer than you can stay solvent". If you are considering withdrawing money because you need them for emergency/household expenses, then the panic will be even more magnified. Before beginning to invest, you must define your financial goals, investable surplus, emergency expenses, etc.

Knowledge Building and Research: Consistent knowledge building and research about various funds/stocks and markets will lead to a great learning journey for you. While there will always be noise, consistent knowledge building exercises along with gaining actual experience by investing personal funds will make you a much better investor. Eventually, you will learn to separate the wisdom from the noise and future similar situations will be navigated with more calm.

Cost Averaging: Whenever we see E-commerce websites announcing sales, we are excited to buy our favourite items at great discounts.

During corrections, there are stocks/funds with their fundamental thesis and growth levers intact and yet they are available at discounted valuations. It is the right time to buy but our behavioural biases come in the way. An automated SIP is an effective alternative to manage that bias.

If the funds and stocks in which you are investing have their fundamental thesis intact, you must consider increasing your investments even more after considering the other points mentioned to get lower average costs. Investing is always simple, but never easy. Managing behaviour is extremely important and rewarding.

(Send queries and views at mintmoney@livemint.com)

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