Should you stop your SIP? NOW?

Don't be NUTS, replies P V Subramanyam

You have been doing a systematic investment plan (SIP) for the past 2-4-5 years. Your parents, friends, colleagues who have been investing in PPF and bank deposits are laughing at you. Your portfolio has always yielded less than the debt market returns.

They have been ridiculing you for reading Subramoney.com -- an equity only kinda freak. Your monthly statements have not looked too good.

Suddenly in the past 140 days your portfolio reflects 'achhe din aane wale hain' and it is suddenly showing you a 12 per cent CAGR. You are in the profit, by a large margin.

So you are tempted to sell. Right?

I get many questions on this blog, in training sessions, on FB asking me the following:

1. Should I stop the SIP?

2. Should I withdraw some money and put it in a fixed deposit?

3. Should I book profits in my equity portfolio?

4. Has the market reached its peak?

Frankly I do not know.

I also do not know anybody who knows somebody who knows anybody who knows! So the search has ended.

I can ensure you that the media does not know. I do not take this approach.

My approach is simpler: In case of mutual funds I have held through the last 13-15 years in fund schemes like Top 200, Franklin Bluechip, Prima, Prudence, and over a lesser period in ICICI Pru Discovery... and have done well.

In case of direct equities I have been tracking and doing well in holding Bharti Airtel, Tata Motors when people were busy writing them off. It helped.

I track and hold companies with good RoE (return on equity), FCF (forward cash flow), as well as looking at arbitrage opportunities. In fact my 2013 and 2014 successes can be largely attributed to arbitrage seeking and acting.

In fact over a long term in equities I am convinced that money is not made in buying (come on if I could spot, so can you), not in correct timing while selling (I got lucky I guess when I sold infra and finance at the peak of the bull market -- so you too could get lucky) -- it i in the sitting for long time with good shares.

Like Biocon, Hero Honda (1985-2013), this seems to be difficult for most of you. Remember compounding (time) is the Archimedes's Principle of Investing. It has an amazing power called 'lever'. If you do not use that, you choose to remain poor.

Just because we do not want to think hard we settle for simple products and simple solutions which do not beat inflation.