Equity is powerless without you

This is the last part in our trilogy. You can read parts 1 and 2, here and here.

If you want to get rich, there is no way you can do that without owning equities.

But can equities alone get you rich?

Nick Murray, in his book, 'Simple Wealth, Inevitable Wealth' writes - Equities cannot do it without you.

Many investors used to walk into the AMC offices when there was exuberance in the stock markets. When we spoke of the risks and the need to assess asset allocation, I would hear, "Madam, no pain - no gain." They would invest all that they had.

What triggered this behaviour?

Obviously, the ease with which the friend or neighbour was getting rich effortlessly. They claimed that they understood the risks and were long-term investors.

As always, markets are under no obligation to continue to rise when you want it the most. There are market cycles, and there is a reversion to mean. The initial reaction is calm and stoic. Panic hits when the prices fall below the purchase cost. However, there is still poise and patience that is displayed. But this time, one can see a few lines of worry in the expression.

Additionally, market movements are like a pendulum - they swing on both sides at times due to some event trigger. Investors press the sell button and drop out when it makes maximum sense to stay invested or invest more. I am assuming that the investment is sound yet subject to market volatility.

What do stalwarts say?
There are so many quotes highlighting the anomaly in investor behaviour. Brian Feroldi states, ''It's a mistake to invest in long term assets with a short-term mindset.'' We should decide if we are traders or investors. Once we know what we want to be, we need to display appropriate behaviour. If we detract, we are the reason for wealth destruction.

Harry Markowitz was awarded the Nobel Prize for his theory of portfolio choice. His theory helps investors to maximise portfolio returns. However, he ended up with a 50:50 allocation to equity and debt. In his words, ''My intention was to minimise my future regret. So I split my contributions fifty-fifty between bonds and equities. I have, from day one, had all my money in stock... because, while I am no longer young, my horizon is my life expectancy, which is still about 30 years.'' He goes on to say, ''The chief problem with the individual investor: He or she typically buys when the market is high and thinks it's going to go up, and sells when the market is low and thinks it's going to go down''.

Managing one's own behaviour is not as easy as it seems at the time of investment. Tracking daily / hourly prices could be detrimental to health and wealth.

Read the previous parts:
Part I: What gets you rich?
Part II: Capital choreography

Shyamali has been navigating the asset management world for over 20 years, working with everyone from the seasoned super wealthy to absolute beginners. She has a knack for understanding the human side of investing and empathising with investors, something that shines through in her writing. She can be reached at [email protected]