Hi, folks!

Just like that, we’ve reached Week 8. And it’s the final edition of the Finshots Money Resolution. Time flies, doesn’t it?!

To wrap this series, we’ll talk about investments. We’d like to think that we’ve kept the best for last — A little bit about stocks, mutual funds, maybe even crypto. But investing is such a vast subject and you know that we’ve got a limited amount of space here. So we won’t do an explainer on the different kinds of investments. Rather, we’ll take a helicopter view of some of the things that’ll help you in your investment journey.

After all, we don’t want to be this guy:

Source: Dilbert Comics

How long will the exercise take? 🕰️

30 minutes.

Yup, this is going to be a short ride.

Ready? Let’s begin Resolution #8!

  1. Don’t do it just because it’s cool

Everyone remembers their first. For me, it was Aarti. Aarti Industries.

I picked it up in 2014 as a newbie investor. I’d just finished my masters programme and was interviewing for a job at a wealth management company. I wanted to put my newly acquired equity research skills to impress the folks there. So I looked at stocks that were being discussed on online forums and Aarti caught my eye. I did my analysis and my “spreadsheet” told me the stock was undervalued. 3 months later, the stock had already jumped 50%. I cursed myself for not buying the stock. And I quickly rushed to invest ₹10,000 (because that’s all I had back then). I only sold the stock in March 2022. Just before the market crashed. I made a cool 900% gain during this period.

It’s a great story, isn’t it? A true story of my first multibagger stock.

And that’s what investing in stocks gives us — stories. That’s what draws people into the stock markets. A good story and the lure of quick money!

But here’s the thing. There’s something I skipped in the story. The part about luck! Because even when I bought the stock, I didn’t know anything about Aarti Industries. I didn’t know anything about the speciality chemicals industry. I got lucky and made money.

Also, I only shared one story in which my skills (read luck) shone through. I didn’t tell you how I lost money in other stocks I picked up over the years. And most people will be like me. They’ll regale you with stories about their multibaggers. And they’ll conveniently avoid talking about all the duds they bought. You don’t hear about it because no one wants to look silly.

And since we only hear stories about those great stock picks that our friends (or those on Twitter) make, it’s tempting to jump in and try our luck as well. We want to be cool. And that’s okay! The one rule that you must remember though is — your stock market adventures shouldn’t affect your parents’ healthcare fund, your retirement kitty, or your child’s education dreams.

So here are some things to keep in mind.

  1. Educate yourself. I suggest you read Varsity by Zerodha*. It’s a great starting point if you want to learn how to read a company’s balance sheet and P&L statements.
  2. You’ll have to deal with horrifying short-term losses. Sometimes a stock you own can drop 50%. Half your wealth evaporates. If you can’t deal with that, avoid buying stocks. At least for now. There’s no shame in it.
  3. Don’t get married to a stock. If you keep discussing your stocks with others, you get committed to it. And it gets harder and harder to change your mind. Investing is all in the head. So when you make an investment or sell a stock, write a note to yourself saying why you did it. It’ll help you to think clearly.

*Zerodha, through its fund Rainmatter, is an investor in Finshots.

2. It’s okay to be boring

The folks who manage money in mutual fund companies will quote Warren Buffet and Howard Marks. They will tell you how their investment philosophy is shaped by Benjamin Graham or Peter Lynch. As an investor, it’ll be all the right things you want to hear.

But here’s the truth. Those sales pitches shouldn’t mean squat to you. Because I have news for you, my friend. 86% of Indian fund managers who “pick” large stocks fail to beat a benchmark like the S&P BSE 100! And that’s over a 5-year period. Forget picking stocks, you can see how hard it is going to be to even pick up a simple mutual fund.

So maybe don’t go hunting for the “perfect” fund. It’s okay if you don’t invest in the top performer of the previous year. It’s okay if you don’t invest in a “Global Metals and Mining Fund”.

Your investments should be guided by one thought – will I have sleepless nights wondering if I picked the “best” fund manager? And the alternative is to just buy a stock market index fund. These funds just buy whatever stocks are there in an index like the Nifty 100. There’s no fund manager trying to dazzle you with their amazing stock picks.

Think of index funds as the introverts of the investment world. They’re not flashy. They don’t want to socialize. They just want to keep their heads down and get on with their jobs. And you need those kinds to get to your long-term goals.

FYI, these index funds we’re talking about aren’t “safe”. They invest in stocks too. So keep in mind that it’s to be used only for those long term goals of yours.

Now you might be thinking, what about investing for short-term goals?

Okay, so fixed income investing through mutual funds should be easy. It ideally should be like buying stock market index funds. But it isn’t. For one, there is jargon to deal with — things like how something called duration will affect returns. And despite what we like to believe, we’re all used to fixed deposits. With an FD, we can pick a maturity that matches our goal and just invest. There’s safety. There’s stability. There’s the interest.

Unfortunately, fixed income mutual funds don’t quite work the same way. While index-like funds for fixed income have also emerged, it’s still a little complicated. So you’d be wise to spend some time doing your research. Or wait for us to write about them in-depth. :)

3. Greed has no place at your dinner table

Your neighbour invested in cryptocurrencies and is raking in the money. Your friend picked up a stock on a tip they received and they’re sitting on a boatload of profits. And here you are doing the boring thing by investing in mutual funds. You think you need to spice up your investment life. You wait for Elon Musk to tweet about a cryptocurrency. Or you ask your friend for a stock tip.

But here’s how I want you to think about the risk of succumbing to these temptations.

If the bet clicks, you could put a down payment on your dream vacation home. Life is all sunshine and butterflies.

But…if it goes downhill, what happens? Well, then not only will you have to kiss your dreams of early retirement goodbye, but be prepared to slog it out at your 9-5 job for another 3 years just to make up all the money you lost.

Are you okay with the tradeoff?

No? Then maybe only assign a small portion of your savings in cryptocurrencies. That is, if you must.

A secret for you 🤐

This is not really a secret. But…if you do this, it is hard to go wrong in meeting your goals (at least the long-term ones):

  1. Buy index funds
  2. Automate your investments. Set up SIPs. And increase the SIP every year
  3. Ignore the markets (easier said than done, but try)
  4. Sell only when you get close to your goals and you want to move your money to safety

The soundtrack to end it🎵

At the end of the day, we all just want to be a —

Billionaire by Travie McCoy featuring Bruno Mars

Coming up next week 📅

Now that the Finshots Money Resolutions have come to an end, you can look back at all 8 editions here. Along with 3 special spreadsheets too.

What next? Well, I guess we’ll probably take a couple of Sundays off. But we will be back. With what? We don’t know yet. But if there is something you’d like to see from us, write in and tell us: !

Even if you just want to say that you’ll miss this series, do write to us. We'll be waiting for your emails. :)

Until we meet again…

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