Ignore daily movement in stock prices
The investment could be in the equity market, bullion
market (e.g. gold), real estate, etc. Even when we invest
in fixed deposits or bonds, we are exposed to the debt
market and subject to interest rate variations.
Once we are in the market, the value of our
investments can go up or down based on market
conditions. This is called market risk.
Mrs Bhattacharya always believed in investing in the
stock market from a long-term perspective. She had
learnt this from her late husband. She would invest
in stocks of good companies and not check their
price movements regularly. Once a year, she would
review the overall situation. Since after purchasing
stocks she was not active in the marketplace, market
risk to her portfolio was only notional. Whether price
of her stock went up or down, it was only on paper
and not ‘real’.
Similarly, when Manoj Jain purchased Government of
India tax-free bonds with a maturity period of ten years,
he was clear from the beginning: “This investment is
for my retirement and I will hold it till maturity. I’m not
going to trade in it.” Manoj decided that after making the
investment, he will move away from the (debt) market.
Hence, movement of interest rate in the marketplace
had no impact on him.
As investors, we need to be clear while investing. Once
we invest in any kind of instrument, we are subject
to market risk. Based on the movement of market
conditions of our investments, their value can fluctuate.
However, after investing, if we decide not to sell or
buy anymore, we would have technically moved out of
the market and, hence, there will not be any impact of
market risk.
There is no right or wrong strategy. If we are clear in
our minds about our strategy, we will know whether
we are subject to market risk or not, and be able to take
appropriate action.Gaurav Mashruwala
(Financial Planner & Author
of Yogic Wealth)
[email protected]Niti: Where did you get these
chocolates? They are too good.Ramesh: My niece made them. She’s
superb at it.Niti: How much do they cost?Ramesh: She doesn’t sell them. This
is only for family and friends.Niti: Oh, I thought I could order them.
My neighbor makes nice chocolates as
well; she sells them for `450 a kilo.Ramesh: Do you want to consider
purchasing from Mrs Mehta? She sells
her chocolates for `385 per kilo and
delivers them home too.Niti: Yeah sure, give me her number.
I’d like to try them.Peter (who had been listening): I
like the ones made by Mrs Fernandes.
She charges `525 for a kilo but they
are amazing. Well worth the extra
amount you pay.One Day at Office
The value of our investments will fluctuate based on market
conditions. Investors need to be clear about the risks involved
L
et us examine what happened here. Ramesh’s
niece does not sell chocolates; they are not
in the market. So she does not face any
competition. On the other hand, Mrs Mehta
and Mrs Fernandes do sell them; they are in the
marketplace and are, hence, subject to market risk.
Similarly, when we invest, we are in the marketplace.74 Outlook Money March 2018 http://www.outlookmoney.com
Debunking Risk Series