5th Sept 2016
There are enough people shouting from the rooftops that market men should look at the long term if they really want to make money. But this advice somehow, even though well intentioned, seems to follow consistently on deaf ears. This is proved by the fact that of the over 1 lac crore turnover that goes on every day in the markets, a very low percentage (10-20%) results into delivery. If you remove the institutional participation from that percentage and also consider that there are many investors who engage in short term investing (which can be considered to be ‘longer term trading’!) then the actual percentage of people engaged in serious long term work simply pales into insignificance when compared to the number of people who are trading. What can be the secret behind the humongous attraction towards trading?
First, I think it has to do with our own need for quick gratification. We all want to see the fruit of our labour quickly. Or Immediately. It is so in most areas of our lives and hence it is natural to think that such a behaviour trait will also spill over into the markets. Investing takes too long to deliver the satisfaction of good results. Trading is a lot faster in that delivery. Hence our own natural instinct- developed actually from the cave man days, you kill today you eat today, else you go hungry – is geared towards immediate results.
Next, we have to think of the Media. They may pay lip service to the long term but that doesn’t run businesses, doesn’t bring in the TRP, and doesn’t result in ad revenue. After all, it is commerce and hence whatever works for TRPs and Ads will rule. That means feeding the natural instincts of people so that they can consume and hence help the media achieve their goal. But the intense focus of the media (particularly TV) on what is happening today, this hour, right now (Breaking news! You heard it here first!) takes the spot light away from the longer term and shines it brightly on the near term. Thus the natural instinct of the person is now further shaped by the almost constant bombarding by the media. This has now spawned an industry of trading advisors. The average market man gets almost no time to think of anything other than the short term.
Next, there is the broking set up. This has now become, more and more, a commoditized business and the intense focus is to generate volume. Brokers these days will go to any length to create volumes. They have slashed brokerage rates already down to the basement levels and now innovative schemes have started appearing in the quest to get the client. Of course, the focus is all on churning and hence it is the short term only, as far as most brokers go. No doubt, they will heartily endorse the value of the long term and like the media, pay lip service to it. But they know which side their bread is buttered- the near term.
Even fund managers and mutual funds are unable to remain immune to this pressure. They are all in the performance game- and with the market place being forced into a short term thinking, any fund manager who needs to keep his corpus intact has to perform in the short term else his client flies away! This problem is less for the big name institutions but very acute for the smaller corpus AMCs or for PMS Managers. Thus, even though they may have a belief and faith in the long term, their business compulsions force them towards the shorter end of the spectrum.
So, it is clear that the game is rigged against those who want to play the long term! How ironical!
Is there a solution to this? One of it is of course performance (but the catch there is that it comes over time!). Some funds or FMs have managed to create a public record of good performance (People like Ramdeo and Prashant Jain etc. come to mind in this category) and for them attracting or keeping their funds is not such a problem. Somehow, they have managed to create the escape velocity needed to move out of the orbit where short-term gravity exerts its pull. But for many others it is a fight.
Another solution, a more drawn out one (alas, also needing time!) is to educate the investor. This is being done but in rather feeble ways, in my opinion. A few well intentioned lectures now and then don’t do the trick (e.g. Is the various Investor ‘Camps’). What is needed is bordering on hand-holding. This brings in the concept of a Trading or Investing Coach. Along with a Mentor. You need both, mind you. Sometimes you can get the two rolled into one but not often. The Coach can teach you the process; he will ensure that you learn the methods, the different approaches. The coach is task oriented. You need a mentor to take you beyond the tasks. He will understand where you need to go and knows how to take you there. It is more to do with relationship. Unfortunately, here too the short term focus comes in! Most people are interested only in the task part. So they attend training programs, seeking advisory services in the hope that their ‘coaching’ needs are met. But it seldom does. What is needed is to go beyond the learning that happens with the training program, the quality of the advisory service- into the areas where one is able to implement those learning and advices. This is the real role of a Coach. In Indian markets the role of a Coach is yet to be even recognised. But it is the first step to solutions for the money making problem. Mentoring comes later or overlaps with the Coaching.
Just think of this. Even the best players in the world (Federer, Messi) have coaches. PV Sindhu won the medal but who did she pay thanks to? P Gopichand right? If you want to go beyond the humdrum life of remaining a prisoner of short term and not succeeding, then go and find yourself a coach and a mentor. It will be the best investment you will ever make in your life!