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COVID Vaccine & what it can tell us about Equity investing

Posted By: Admin

Last week I was chatting with a doctor friend of mine. She was explaining that she had just taken the vaccine shot a couple days earlier and it went remarkably better than she had imagined. I was curious and pursued the conversation further with her. I started by asking her, if she was certain that the vaccine was safe and that it was an absolute necessity. She had the following interesting thing to say.. “I had a choice between contracting Covid virus and dying because of it or I can take the vaccine ( with no apparent side effects or illnesses) and  a possible future threat that is now imaginary.  She explained that there are risks all around us, we just need to be prepared to cover the risk that is most important to us. She said that I am 60 years old and if any adversity hits me after say 70-75 years, I believe it is a lesser risk than dying of covid now. I found that argument convincing and strikingly similar to the dilemma that we investors face. 

The equity markets have hit a  high of 50,000+ on the sensex and almost everybody and their grandma will tell you that the markets are overheated. So most of us are waiting for a chance  to book profits and exit the markets. But it is also true that for most investors this is their long term retirement money which they do not need in the next say 10 years. However what they need at the end of 10 years is a good corpus. So here is the dilemma facing investors, 

  I need to be focused at creating a long term corpus from  Equity Mutual Funds, but then I must be willing to ignore the short term fluctuations that will happen in the markets ; 

Or I will constantly keep moving in & out of equity markets according to how I believe the equity markets will behave next week, next month or next year; in the bargain may lose focus of where I need to reach in the long term.  

Of the two, the risk of doing the latter but losing focus of the goal is far higher than if someone just forgot he had invested monies and like rip van winkle woke up 10 years later to a fortune. Since the start of Sensex ( 1979: 100pts, 2021: 50,000pts) investors who have stayed the journey have made a return of 15.90% compounded Annual Growth Rate. I daresay even if we take any 10 year cycle we would have made a decent return if not these levels of returns. Yet we are so obsessed with not wanting to  see temporary reds on our portfolio sheets that we would risk the long term gains for short term comfort of not seeing red in one’s portfolio.

This is similar to the doctor not taking the Covid shot, based on an assumed future health hazard, while the current Risk of Covid death is imminent. 

I got my answers to what one must be doing. Hope you did too… 

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