Retail investors remain impulsive sellers: 5 key money lessons to achieve your financial goals

In complete contrast to the conventional rules of investing, a recently released Sebi study showed that retail investors sell nearly half of their holdings in initial public offerings (IPOs) within a week. Individual investors sold 50 per cent of the shares allotted to them by value within a week of listing and 70 per cent of shares by value within a year, noted the study titled Analysis of Investor Behaviour in Initial Public Offerings.

These insights are antithetical to the rules of investing shared by wealth advisors from time to time, according to which investors should stay invested over a long period of time.

From Ben Graham to Peter Lynch, and Warren Buffett to Ray Dalio – everyone tends to emphasise the significance of long-term investing. This means you buy securities based on their long-term growth potential and then do not get panic or euphoric based on immediate price fall or jump; buy right and sit tight, they say.

5 key timeless investing lessons to be followed:

A. Magic of compounding: The returns delivered by an investment are disproportionately higher in the later years than in the former years. The power of compounding is so potent that it is also referred to as magic. In fact, Oracle of Omaha Warren Buffett has often emphasised that a key reason of his wealth lies in the power of compounding.

B. Ignore Mr Market: It is often emphasised that the price of securities quoted by financial markets should be overlooked just as some random person known as ‘Mr Market’ is telling you the price of your assets on a daily basis.

These prices are as insignificant as some random person -- Mr Market -- offering a price to buy your assets based on his buying capacity.

C. Ignore volatility: Sometimes prices of securities rise, and on other times they fall. Regardless, you are not expected to act impulsively and instead – you should overlook volatility and remain invested since you are committed to the company whose stock you have purchased.

Famously, Warren Buffett once said, “You should invest in a business that even a fool can run because someday a fool will.”

D. Equity is for long term: At the time of curating a portfolio, investors are supposed to allocate largest portion of their portfolio to equity. This is the portion of investment which is meant for a long term. The conventional wisdom says the younger an investor is, the larger this allocation should be and as you grow older, you should cut down on the equity allocation.

The underlying idea behind this is that you have longer time ahead to meet your financial goals when you are young.

E. Invest via SIPs: To encapsulate the learning highlighted in the above points, investors are often advised to make the most of price volatility and invest systematically every month, week or quarter i.e., via systematic investment plans (SIPs).

Investments by mutual funds

It is interesting to note that the mutual fund houses often follow this advice of long-term investing while managing their schemes, as noted by the Sebi study.

The study observed that mutual funds tend to invest for longer periods in IPO shares. So, while individual investors sold 50 per cent of their shares within one week of listing, mutual funds sold nearly three per cent only in this time period.

“Mutual Funds sold about 3.3 per cent of allotted value within a week, as compared to 79.8 per cent for Banks,” noted the report.

It was also discovered that during the first week of listing, individuals were net sellers, whereas mutual funds were net buyers. In the first week, individuals sold shares worth about ₹15,000 crore across IPOs, while mutual funds bought about the same amounts of shares.

Additionally, nearly 37.7 per cent of the total shares were allotted to FPIs, followed by individuals (31.9 per cent), mutual funds (16.0 per cent) and corporates (5.2 per cent).