Should You Base Your Investment Decisions On News Flow? Know Here…
Sep 18, 2019

Author: Aditi Murkute

(Image source:Photo created by rawpixel.com - www.freepik.com)

News---an interesting part of our day-to-day lives. It informs us about local, national, and international current events, recent happenings, social-political-economic updates, new information in science, technology, etc...

It is presented in the form of a broadcast or in a newspaper and this news flow influences the decisions we make.

Everyone begins their day skimming through the different mediums of news to get their daily dose of the latest updates. Mr Chatterjee began his day by sipping his morning brew and eyeing the newspaper.

His eyes were scanning through the news headlines to see if anything was worth an interesting read. One of those was the distressing news of India's economic slowdown falling to its lowest; the equity markets have taken a beating.

After reading this, he got very anxious about his current investments. On his way to work, he met his neighbour Mr Sharma, who pointed out the volatility in the market and was thinking to put his money into a bank FD, as he had lost a lot.

Almost everyone he met during his commute to work was speaking about this dampening news of India's economy. By the time he reached his workplace, Mr Chatterjee had made up his mind to discontinue his ongoing SIP investment, make redemptions, and to create a bank FD of that amount.

During lunch hour, Mr Chatterjee called his financial planner/adviser to inform him about his decision. The financial planner was an experienced, ethical, and unbiased adviser from a research-driven organization, i.e. PersonalFN's financial planner.

The adviser on hearing Mr Chatterjee's decision understood that he would be making a mistake by acting on the news flow and falling prey to his negative emotions. The decision to liquidate his investment is due to his fear, panic, and anxiety of the 'Khabar' (news) he read in the 'Akhbar'(newspaper) followed by his neighbour's strategy.

The financial planner responded, "Let's discuss this in person after taking a look at the performance of the investment folio in the evening".

Mr Chatterjee was anxiously waiting to meet the adviser that evening at his place. When the adviser arrived, he told Mr Chatterjee that by redeeming his investments now would be imprudent.

Mr Chatterjee asked baffled, "What do you mean?"

"Mr Chatterjee, you are giving in to your emotions and not thinking clearly for the long term. When we had created your investment portfolio strategically, we had done it based on your several financial goals (long term, medium-term and short term) and accordingly you had invested your hard-earned money.

And reading the news, you are panicking and not thinking about your future goals. Also, by following your neighbour, creating bank FDs will prevent you from accomplishing your financial goals. Let me remind you once again, investing is an individualistic exercise since each person is different, with different life goals, wants, and needs. So, it should never be done as per your friend, family (parents or siblings), colleague, investment guru, or your neighbour."

Mr Chatterjee quizzed, "Then what should I do?"

The adviser calmly responded, "Did you consider assessing and reviewing your portfolio?"

"Can you elaborate further", Mr Chatterjee asked.

Adviser began explaining further, " Reviewing and monitoring of your portfolio periodically helps you keep a track on the growth performance of the portfolio before the financial goal/s transpires. It helps you to do deal with such distressing news of economic slowdown in a better way.

If you check and track the performance of the portfolio with its category peers and benchmark across varying market cycles and time periods, you get an idea if you should continue with your current investment or not.

Generally, mutual funds are professionally managed by experienced fund managers from reputed fund houses which conduct thorough research and adhere to the best processes and systems.

The performance of a mutual fund scheme is linked to various internal and external factors and hence you need to review your portfolio. Evaluate the schemes to make renewals, rethink your investments based on the performance frequently, and weed out the non-performing ones to replace those with a high probability of good returns after every 6 months or at least a year. In short, you need to keep track of your portfolio.

For example, some funds that do perform well over a short time period would be able to outperform over longer periods. And sometimes, some funds having smaller AUMs too have performed better than the funds with larger AUMs.

As seen from the table below, few of the schemes have been performing better or in line to their benchmark indices across market cycles irrespective of the size of the AUM."

Table 1: Performance across market cycles

Scheme name Bear Phase Bull Phase Bear Phase Bull Phase Bear Phase Bull Phase
08/Jan/08 To 09/Mar/09 09/Mar/09 To 05/Nov/10 05/Nov/10 To 20/Dec/11 20/Dec/11 To 03/Mar/15 03/Mar/15 To 25/Feb/16 25/Feb/16 To 10/Oct/18
Invesco India Contra Fund -50.69 88.01 -24.67 33.52 -19.60 67.23
Kotak India EQ Contra Fund -51.90 74.77 -27.05 27.96 -21.22 59.99
Principal Dividend Yield Fund -55.52 86.78 -29.33 24.59 -21.31 70.69
IDFC Focused Equity Fund -43.57 65.01 -23.62 20.61 -23.80 57.55
SBI Focused Equity Fund -72.01 127.08 -14.17 33.08 -11.95 50.34
Aditya Birla SL Equity Fund -58.92 85.51 -30.70 33.37 -18.47 60.62
Aditya Birla SL Midcap Fund -61.60 107.44 -29.46 33.77 -16.13 46.01
Aditya Birla SL Small Cap Fund -63.02 104.56 -27.59 33.59 -13.41 52.16
Canara Rob Emerg Equities Fund-Auto Repurchase -68.06 117.84 -23.47 45.69 -16.32 66.66
Canara Rob Emerg Equities Fund -68.06 117.84 -23.47 45.69 -16.32 66.66
Canara Rob Equity Diver Fund -55.43 92.07 -17.69 27.20 -25.26 55.96
HDFC Equity Fund -53.90 110.75 -28.53 29.56 -27.33 67.06
HDFC Top 100 Fund -49.09 94.23 -25.99 27.25 -26.42 65.83
ICICI Pru Multicap Fund -55.77 81.86 -28.18 30.70 -14.93 55.06
L&T Midcap Fund -64.03 112.45 -30.95 38.93 -14.79 66.36
Principal Emerging Bluechip Fund 123.80 -36.36 44.64 -18.97 70.33
HDFC Capital Builder Value Fund -56.74 95.13 -24.96 30.86 -19.29 61.77
JM Value Fund -77.59 80.20 -43.11 29.70 -23.23 68.29
Tata Equity P/E Fund -55.64 90.72 -24.45 32.15 -22.65 70.37
Category: Benchmark
NIFTY 200 - TRI -57.25 79.90 -27.67 26.85 -20.60 56.50
NIFTY 500 - TRI -57.73 81.66 -28.17 26.95 -20.06 55.80
Nifty Midcap 150 - TRI -66.69 113.20 -35.35 34.50 -15.14 60.19
Nifty Smallcap 250 - TRI -69.31 115.17 -38.69 32.46 -19.23 42.52
S&P BSE 200 - TRI 87.03 -27.65 26.88 -20.04 56.86
Data as on September 18, 2019
(Source: ACE MF)


So, what we can do is review your portfolio and assess if it's in line with your investment time horizon and help you accomplish your financial goals.

Mr Chatterjee agreed to it and got his portfolio reviewed. It turns out, only slight modification was required to his portfolio, which he readily agreed to. He is relieved and isn't bothered about any short-term news flow.

Epilogue:

"News" is significant but treat it only as a means to make better investment decisions, and not as the only option to decide. Remember that the News is a short-term update, that is cyclical in nature, and acting on it always can prove perilous for your financial wellbeing.

So, for any modifications you would like to do to your portfolio, try to assess the ground reality first by talking to your adviser and schedule a meeting to review your portfolio.

Only after you see consistent underperformance of your portfolio due to few laggards, you can stop investing in those funds and replace them with better ones.

Hence assessing your portfolio after reading such news is very important instead of jumping the gun and making decisions in haste that can jeopardize your long-term wealth accumulation journey. Thus, don't let your emotions influence your decisions in the short run.

Instead, consult your financial planner to help you with reviewing your portfolio and stay focused on your endeavor to accomplish the envisioned financial goals.

Reach out to PersonalFN's Financial Guardian on 022-61361200 or write to info@personalfn.com.

You may also fill in this form and our experienced financial planners will reach out to you.

PersonalFN is a SEBI registered investment advisor. We will be happy to help you to get your portfolio review done.

PS: If you are looking for a strategy that will provide high rewards with moderate risk, across market cycles, consider  PersonalFN's Premium Report, "The Strategic Funds Portfolio For 2025(2019 Edition)".

You gain access to a ready-made portfolio of top recommended equity mutual funds for 2025 based on the Core & Satellite approach to investing.


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