Every investment thesis has a good, bad, and ugly side to it, and you can certainly count on almost all of those aspects playing out, to varying degrees, if you were to hold an investment for a few years.
On aggregate, it may play out wonderfully well despite the intermittent obstacles. But we can be rest assured that our conviction will be tested given the radically uncertain nature of the business world and financial markets. And just like any chain that is only as strong as its weakest link, our conviction is only as reliable as the amount of equanimity with which we can back it up in the midst of the inevitable hurdles.
Things get a bit more complicated because just as we try and hold onto our existing investments amidst all the ups and downs, the thought of finding a new investment idea, which is free of these shortcomings on the face of it, is always tempting and naturally so.
We can possibly equate our job as an investor to that of a gardener — there is a time to sow, time to remove the weeds along the way, but most of the times the best course of action is to just take care of what you have already sowed and let it bloom. If you have a bad harvest, iterate and try again.
On the other hand, imagine a gardener, who is excellent at finding the best possible seeds to sow (or) even has access to a friend, who can provide him with the best seeds in the entire district, but lacks the patience to let nature take over and reward him over time. All of us have some version of this gardener in how we fail to allow our investment strategies to play out for us.
We can be very impatient, at times, with the best of ideas and extremely complacent with the worst of ideas.
Similarly every time a person sees that the market has fallen they panic and start trying to exit their positions in such haste because they fear that they may lose more. But what they don’t realize is the new opportunities they are missing out on. It is those who take the chance that succeed in the future.
The markets falling are an indicator of the investor’s trust in their choices and not in the markets itself. The markets fall due to a minute detail that scares the people and makes them exit their positions at prices they wouldn’t settle for usually which makes the market fall more.
These falls scare most people away from investing but the time to increase their position or open new ones is now. History has shown that the market falls to rise again and when it does it always comes out stronger than before.
To prove this we did a test of our own. We invested into the index every time it fell below 15% from its peak and keep it for different time periods. What we see is that the market recovers itself over time and thus makes this time a critical time to buy.
What we also see is that out fund has been outperforming the market since years and every time that the Small Cap Index has fallen we saw what would happen if we had bought more in our fund and without a doubt we see much better results over all time periods.