Investment misses of 2009

Not investing in stocks at their lows was the single biggest investment blooper for which young investors kick themselves in 2009.

True, the Sensex zooming from 8000 to 16,000 in a single year was something no one expected.

After all, who would have thought the BSE Sensex, after plunging to a pitiable low in March this year, would have locked itself in the upper circuit limit just two months later?

But despite the going being good, most retail investors seem to have gained little from the market rally.

Business Line interacted with some young and experienced investors and learnt that most of them missed the first leg of the market action due to initial scepticism; the second leg due to excessive caution and belief that markets may correct again; the third and final leg of the rally due to unwillingness to commit investments on already high priced stocks.

Here are the mistakes that investors regretted during the year gone by.

Playing it too safe with cash was one mistake that many investors succumbed to in 2009.

Staying put in cash

“I was thrilled when the Sensex dropped to 8,000 points in March. But at that point, neither did I have enough money nor the courage to say that everything was going to be okay from the next month,” says Keerti Bhandari who entered the stock market in 2007.

“Since this was my first experience with a bear market recovery, I hadn't expected it to happen so quickly. Things were quite bad, both for the big and small companies, and I was waiting for another leg of correction to happen.

“But now I realise what an opportunity I have wasted,” she grumbles. Investors such as Keerti were not alone.

Many equity fund managers too held on to cash for a good part of the initial rally and ended up missing the bus.

Day-trading

If holding on to cash was one mistake people committed, there were also those who switched their strategy, to regret it.

Some investors admit to shifting from long-term investing to day trading in 2008 and 2009 as they felt this would ensure a minimum market return! Day-trading may have thrown up the odd opportunity with the markets upward bound, but it came with its share of sleepless nights.

“For the whole of 2009 my only activity in equities was day trading. My returns are almost on a par with those given by the broader indices. However, now it seems that had I stayed my course of being a ‘value investor', I may have made the same or probably even better profits, but sans the excitement (read anxiety) associated with trading,” says Sushil Churiwala, a long-time stock market investor.

But unlike Churiwala, Shantanu Sharma, decided to hold on to his fundamental principles. “After all, making returns is about picking the right stocks at the right time,” he says. Sharma has made 30 per cent gains from his equity investment this year.

“When everyone around me has made no money because of excessive cautiousness, I am happy I braved it through 2009. In 2008, as the market began to decline, I cut losses from some stocks or booked gains on some of the blue-chips,” he adds. But as soon as the market bottomed out in 2009, he revisited these stocks and started accumulating them. “When I read about how foreign institutional investors and domestic institutions had entered equity markets with renewed vigour, I decided to follow them because they would have done better homework than me. So, first I accumulated large-cap stocks and then mid-caps with strong fundamentals. I pick small-cap stocks based on the sectors only, since I am not too convinced about all of them,” states Sharma.

Exploring new options

Investors who didn't want to sit on cash took this chance to diversify their portfolio. “I was waiting for stability to set in my job. So for half the year, my funds were idle but safe in the bank account”, says Rajiv Mithra. But of what use can idle money be? So once his financial position improved, he began to explore relatively safer options and entered the debt market.

“Liquidity was my only concern while investing in debt options. Despite returns being low, I parked my money in short term bank deposits, where I could easily withdraw it, to invest in stock markets, when required”, says Mithra.

Apart from stock market and debt instruments, some investors also used this chance to add some gold to their portfolios. Some investors wanting to cash in on the low home loan rates, such as Shridar Sivakumar, indulged in buying low cost property.

“With many banks offering home loans for 8-10 per cent, I bought a low-cost apartment this year,” he says. “I am hoping rates won't become too expensive by next year. But if they do, I have to think of plan-B”, he adds.

What's ahead?

All said and done, most investors appear to have missed out on the stock market rally. And now with stock prices looking costlier than what it was a year ago, six out of ten investors Business Line spoke to feel they may continue with their current investment patterns for 2010 also. “Until I see any visible correction happening in the stock market, I will stay away from it”, affirms Dhanya Parasuram.

“However I will keep track of the blue-chip stocks and accumulate them as and when their prices correct”, she adds. Reliance Industries, Bharti Airtel, L&T, BHEL and ITC are a few stocks she added to her kitty after closely monitoring them.

And then there also those, who not wanting to repeat their older investment mistakes, are queuing up to invest in small and mid-cap stocks. “I missed making money out of small and mid-cap stocks in 2009. But I will not repeat this mistake next year,” affirms Vikram Seshadri.

“I know it's risky, but that's okay,” he beams. Well, isn't that the story of most investors who missed the rally in 2007? No wonder they say hindsight is always 20/20.