The business of investing Asif Saad

OPINION

Asif Saad

The business of sustain good returns for the longest period of time. To take a simple example, from real estate if I may; if I bought a house to live in 10 years ago and its value has increased investing 3 times since then – does that qualify as financial gain? Will I sell it because it has given a fantastic return? Or is it irrelevant to me? After all, I live in this house and it provides adequate space The focus needs to be on sustaining returns over to meet my needs. If I sell it, I will need to buy another similar time instead of amplifying them in the short-term house which will cost the same or even more. Therefore, I will never sell it unless it stops meeting my needs and if that happens A disclaimer to start with; this article is not meant to be taken as investment advice and I am certainly not qualified to give such advice. What I am narrating here is based on common sense and my own experience. As we witness another significant fall of the stock market, our human survival instinct is to cut our my decision will be driven by my needs – which is completely different to my desire to maximize my returns. The only people who gain from speculative trading are brokers whose business depends on trading volume – irrespective of market direction. The herd mentality is the killer of value and if you follow the market – buying when the price is rising and selling when it is declining – you are likely to lose money. The reason is simple – losses, sell and run away. The buying and selling will depend on your life when everyone behaves in the same way they will all eventually perspective and whether you are inherently an optimist or a pessimist. either overpay or undersell. Instead, when making buy or sell Human beings are known for finding patterns when none exist and make decisions, long-term investors look for the underlying value of predictions based on guessing what is coming next. Guessing means the asset and what it means to them today and in the future.there is no evidence and hence the narrative swings to whichever way we The important thing to keep in mind as a long-term inveswould like it to be. tor in an asset, is that one would never look at the daily, monthly We also tend to think in isolation; if we predict the stock market to or even annual fluctuations of value. You need to track your fall by 50%, we would like to tell ourselves that share values will be the investment over 10-20-30 year periods. And you track it against only thing that declines while the rest of the world remains the same. your needs – just as I illustrated in the case of my house. Do the

In reality, if and when we make this sort of a prediction, it is based returns meet your needs? If so, they are good enough!on our world view being extremely negative – whether this is because of It is not about me moralizing against avarice – its about a pandemic or a recession or political uncertainty. Whatever causes them, what makes sense for us to have a high-quality life!doomsday scenarios cannot pertain to one particular market or product. It is only logical to assume that this sort of thinking will

Likewise for the vice versa upswing. beat speculative worries hands down – and not just monetarily. Common sense tells us not to invest for short term gains, which is It is difficult to practice but is the only way to keep yourself sane.well understood, although not always practiced. The only sound invest- You need to understand that swings in value are not of ment time horizons are long-term and to me, that should not be less than any interest to you – unless they are driven by the fundamental 25-30 years. That kind of timeline might as well be called ‘forever’. destruction of the asset. And if that is ever the case, trust me Think about why people invest in the first place. You invest your - we will all lose much more than our savings. In the words of savings – which is money you do not need to run your daily life. You want Nassim Taleb, the renowned investment philosopher, “never take this money to compound over time. However, most people don’t get this. investment advice from someone who has to work for a living, They want to know how to earn the highest returns instead of wanting to unless there is a penalty for the advice”. Investment managers are incentivized to beat the market. The better the fund manager the higher the returns compared to the market index. The problem is that this is achieved within a short period – a month or a quarter or a year. It defeats the purpose of The writer is a strategy investors who are holding assets for long-term value creation. consultant who has Don’t get me wrong – fund managers and investment advisors are well-meaning professionals. But the previously worked at various advice they give has to be based on short-term time horizons for no fault of theirs. Their clients expect them C-level positions for national to provide maximum returns in the short-term. It is rare, for an investment advisor to provide and for a client and multinational to care for, performance over 25-30 years. To conclude, financial investment is like most things in life – a corporations long-term perspective wins every time. The same is true for entrepreneurship, career, relationships – even in real estate – the real winners are those who hold don’t sell properties. Life is a marathon and to complete the marathon you need to make wise choices. The sooner one learns to make them the more the gain.