Amitabh Pandey, 56, is a senior official in one of India’s leading cement companies. His wife, Madhu Pandey, is aged 55. The couple has two children, daughter Ananya (23) and son Rishabh (20).

Pandey is a latecomer to the equity market. He did not have any investment in equity-oriented instruments till he was in his mid-40s. As his children grew and he was nearing 50, he realised he needed exposure to the capital markets for his long-term wealth creation.

It was in February 2013, when the stock market was coming out of the long consolidation phase after the 2008 crisis, that Pandey began investing in equity through systematic investment plans (SIPs). He began with a monthly SIP of Rs 50,000—his first-ever investment in the market under the supervision of Shriram Deshpande, founder and director,  Renascent Bizwise India Pvt. Ltd, a distribution firm.

The timing of Pandey’s investment could not have been any better, as the stock market was gearing up for another bull run. Within two years, his portfolio showed abnormally high returns of nearly 40 per cent, which got him excited. Since he was new to equity investing and the stock market, he assumed this upward movement was natural, and his expectations for returns grew higher as he anticipated the continuity of such high-trajectory growth in perpetuity.

But his expectations went in for a toss, when in 2016–in his third year into his investments–his portfolio shrank by 2 per cent. This was a new experience for him and he attempted to make some changes in the portfolio based on the newly gained experience.

The Advice

It was here that Deshpande realised the need to manage Pandey’s financial behaviour in order to prevent him from making short-term mistakes.

Deshpande knew how emotionally-driven actions could have a disastrous effect on the overall investments, and how such behaviour takes investors far away from the disciplined long-term wealth creation approach.

Deshpande advised Pandey to ignore the market noise and exercise patience while keeping his focus on long-term wealth creation.
“I explained to him how such emotionally-driven decisions could derail his long-term investment journey. I also gave him past historical examples about how markets work,”  Deshpande said.

He introduced Pandey to the concept of behavioural science in investing, which proved to be of immense help. Gradually, Pandey understood that while he could never control the market and market movements, he could, in fact, control his emotions, and focus on his long-term wealth creation goals, while keeping in mind that investment decisions based on short-term market behaviour could turn notional or temporary losses into permanent damages, which could have a spiralling effect on his long-term investments.

Pandey followed through with Deshpande’s advice and continued with his SIPs. Now, after nine years of association and advice, his  investments are bearing fruit.

Now Ananya has also started investing, having initiated it right with her first salary. “This will instil the value of early investment,” says Deshpande.

Deshpande is now helping Pandey rebalance his portfolio, as he is now close to retirement. To this effect, Deshpande has implemented a proper asset allocation strategy to make the investments more stable.

The asset allocation strategy proved beneficial during the 2020 pandemic as Pandey’s portfolio managed to withstand the crash well and made a reasonable comeback as soon as the market recovered.

Since the Covid-19 outbreak in 2020, Pandey’s portfolio has grown 65 per cent in value and he has grown as a seasoned investor with a long-term vision.

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Lessons Learnt

The lessons Pandey learnt in his investment journey are summarised below.

A. Behaviour control: When it comes to goal-based investments, one must keep control on one’s behaviour, as momentous decisions looking at the short-term scenario could prove detrimental in the long term. One must focus on the things one can control, and not on factors which are beyond one’s control.

B. Risk management is more important than chasing returns: It is important to analyse risks based on age, income, assets, liabilities, and family size. Understanding the underlying risks associated with every asset class is far more important in picking an investment based on the past returns. Investments should be need-based, and defined according to the objectives of one’s life goals.

C. Avoid frequently monitoring: One should avoid daily or monthly monitoring of one’s portfolio, as it leads to unnecessary reviews, which in turn lead to wrong conclusions. Since investments have gestation periods, it is best to review the portfolio once a year with your advisor for corrective measures, if required. Moreover, during times of a major change in the financial planning strategy because of a market crisis or major change in some financial goal, such as an emergency or otherwise, it is advisable to review your portfolio in detail along with your advisor.

D. Volatility helps build long-term wealth: Volatility should be taken as an opportunitiy to invest rather than a reason to exit. Phases in the market marked with volatility are lifelines for long-term investors, as various cycles help investors average out their cost of investments, which ultimately yields potential returns in the long run.

Shriram Deshpande, Founder & Director, Renascent Bizwise India

Disclaimer

Financial Planning of Amitabh Pandey is based on the “personal opinion and experience” of Shriram Deshpande, founder and director,  Renascent Bizwise India Pvt. Ltd.  It should not be considered professional financial investment advice. No one should make any investment decision without first consulting their advisor and conducting research and due diligence.