Benjamin Graham was a famously influential investor, who often mentored Warren Buffet on the concept of Value Investing. One of his notable contributions is the fictional character, known as Mr. Market. To understand this character’s mind, we need to assume the following scenario.
Say for instance that you are the owner of a successful business. You frequent a group of business owners to further learn the tips and tricks of the trade. One member of this group is Mr. Market. By nature, he is a bipolar person and makes numerous offers to buy your company.
On days when he is in a good mood, he offers to buy your company at high price. However, there are days when he is in a thunderous mood and asks you to sell your company at a low, sometimes unfair price. Regardless of the price that he offers, your company is creating a steady amount of profit for you over the years. You may or may not choose to sell your company entirely based on what you feel its value is.
Now, replace the idea of your company with your SIPs invested in Mutual Funds. And, replace Mr. Market with the market conditions that are a characteristic of your investment journey. On comparing the two scenarios, despite the volatility of the markets you may realize that your SIPs generally don’t decrease in value regardless of how the market changes over a long term investment horizon.
Presently, many investors may have been dissatisfied about the returns from their SIPs in Mutual Funds. This has caused a lot of young and early investors to get cold feet and led to them selling / redeeming their investments or stopping their investments in equities. All the reasons for this behaviour have been chalked up to one single aspect – volatility of markets.
A seasoned economist will help you understand that this aspect should not deter you from investing through SIPs. Let us use another analogy to understand the ‘why’ behind this reasoning. Say, you have been eyeing an expensive teakwood table or quite some time now but haven’t bought it due to its high price. However, you fine day you find it on sale and decide to buy it promptly.
This is what happens when the market goes down. You end up buying more units at the same price you have been paying from the beginning. The investment in SIP through Mutual Funds will keep on gathering units regardless of where the market goes. This can result into good returns as time passes by and as market changes its position.
Awaiting the market to settle back into non-volatility like a well-oiled machine is relatively a two-dimensional notion. If this has been stopping you for so long then it is about time you converted that excuse into an opportunity to invest. Similarly, if you have already invested and feel doubtful about the same, then it is a good idea to stay invested in order to reach those long-term goals.----------------------
This article should not be considered as 'investment advice'. We request the Reader to make informed investment decisions and consult their financial advisors to determine the financial implications with respect to investing in Mutual Funds.
An open ended fund of funds scheme investing in equity oriented schemes, debt oriented schemes and gold ETFs/ schemes.