Dealing with Market Turbulence

Recently, while on a flight to Bangalore, I was sitting next to a young man. I noticed him praying when the flight took off and in fact he looked very scared all through the take-off phase. Every time there was turbulence, he would call the cabin crew for help.

I decided to get him talking to divert his attention, and his first comment was, “I will never fly again”. His name was Aasif, a young engineer who was flying for the very first time in his life.

A computer engineer, recently hired by Microsoft, Aasif was being sent for training in Bangalore, before leaving for the US. I asked him, if he couldn’t be at ease in a two hour flight, how would he manage traveling all the way to the US? He was honest enough to admit that he had requested Microsoft to send him train tickets for the Bangalore but the company did not oblige.

I got him talking about his life, to which he shared that he came from a middle class family and had always dreamt of buying his own flat. I was impressed with his simplicity and his determination to do well and we exchanged cards. Now, my card has a simple calculator that shows the value of compounding - and this piqued his interest! Suddenly, he asked: “I will pay off my loan in next six months with the increase in salary that I have got, what can I do with my savings after that? Should I buy another property?”

That seemed like an opportune moment to explain the concept of long-term investment, especially with relation to the principle of compounding. I asked him if he knew that the stock price of the company he is going to work for, Microsoft, has gone up over 1500 times in the last 30 years? I also told him that he is headed to the land, which created one of the richest people on earth, not by virtue of being a businessman, but by making businessmen work for him – I was talking about Warren Buffett.

I shared how Buffet earned 21 per cent CAGR (that means on an average, 21 per cent every year) over 65 years! What is noteworthy is not the 21 per cent figure but the time he invested for over six decades! After all, time is the most powerful variable in the compounding equation as the returns are exponential. Aasif, nodded along.

I also warned him about the pitfalls. Investing may not even be half as smooth as the plane ride, even if you invested regularly, let’s say through the most popular route of investing, Systematic Investment Plans (SIPs). I showed him how for long periods SIPs may give low or no returns (like the six year period between 2007 and 2014), and how as equity prices rise over the long term, returns follow. But it takes time.

Investing is like flying, while SIPs are like your seat belt - stay focused on your career, make money, take care of your parents, do not focus too much on market turbulence- they will always be there. Accept the turbulence and let SIPs do their work, in peace. In case you get worried, engage with a good financial advisor.

As I made the last point, there was a sensation of the flight landing on the tarmac. Aasif had a sheepish grin saying that his anxieties about flying had almost disappeared while talking to me. “I think what really helped pacify me during the flight was our engaging conversation, away from the turbulence”. He, thanked me and promised to stay in touch.

The author is President, DSP BlackRock Investment Manager