Letter to Investors - June, 2020

From: Mohit Kheskani

Date: 3rd June, 2020

Dear Fellow Investors,

I hope you and your family are in good health. These are testing times and considering that none of us has ever gone through this, we have to survive, thrive and come out stronger.

Let me start with a word of gratitude, thank you for trusting us with your hard-earned money. While I will reach out to you for an in-depth discussion for your investment performance, I will give you an update of the current state of financial markets and what keeps us going in the current environment.

By the time you have read this article, the Sensex (Stock Market Index) is 19.31% down since its all-time highs, which was just 2 months back. Yes, this is after the recent 3 day rally this week! (Probably a dead cat bounce, if you ask me)

And now with the coronavirus “un”lockdown 1.0 in the offing, nobody knows what to expect from it (or from the economy). Considering that 2019 had been a tough year and we were already in a slowdown, Covid-19 has hit us on the chin.

Phew. That’s a host of bad news for the day!

However, As an Investor, not all is lost! This pandemic is not the end of the world and we will come out stronger from this! On the contrary, this is the time to stock up on the good quality mutual funds & stocks! The “dollar cost averaging” will work its magic over the years! Let me explain this complex sounding word “dollar cost averaging” with a simple analogy –

Your mom asks you to buy tomatoes worth ₹100 on 15th of every month. You take the money, go to the shop and buy tomatoes worth ₹100. The price is ₹10 per kg, so you end up getting 10 Kgs.

Next month due to bumper crop, the tomato prices have fallen to ₹5 per kg, so now with the same ₹100, you get 20 Kg tomatoes, Your Mom is happy and makes you Penne Arrabbiata Pasta from the extra tomatoes!

So how does this connect to the “dollar cost averaging”?

Our SIP of ₹10,000 on 15th of every month is used to buy certain units of mutual funds. When the price per unit of mutual fund is ₹100, you would get 100 units.

Now due to the current turmoil in the stock markets, the NAV of the units have fallen just like the price of tomatoes. We are getting the same mutual funds at NAV of ₹75. Effectively meaning that now our ₹10,000 will fetch us 133.33 units.

In the investing journey, at any given time, our focus should be on accumulating more number of units. This is the golden mantra to become rich, slowly but surely. I will focus on which funds to buy and when to exit, you have to focus on how many units are credited in your account!

As far as returns are concerned, this dollar cost averaging will ensure that we are able to earn handsome returns once we move out of this crisis and adapt to the new normal!

Questions that I get very frequently –

1. Is it the right time to invest?

2. Are we at the bottom of the market?

3. What if we invest and the market falls again?

Nobody knows where the bottom will be in this market! If they claim to do so, they are most probably lying.

I don’t know if the markets will fall again or not! However, one thing I am certain about is that if we were willing to invest in January/February 2020 (US & Indian Markets touched all-time highs); there is a compelling reason to look at opportunities to invest in the current market fall.

The money should be divided and invested in tranches and the first tranche should be invested now, followed by investing the rest in a gradual manner at every market fall. (We are already following this strategy for all of our clients – either by using SIP or STP mode)

What I do know is this –

The current crisis provides a once in a decade opportunity to invest money into the equity markets, last such opportunity was in 2008-09 (Global Financial Crisis). It is like a garage sale, which is selling all the branded stuff, at throwaway prices. The prices will not be the same anymore when a coronavirus vaccine is invented! Actually, they will be no-where near where they are right now!

So, if you have been thinking to start your investments or add more to the current investments, now is the time to start! Although no-one can know what the future beholds, all we will try to do is place our investments in such a way that we can make use of the opportunities that markets throw at us.

On the virus –

We have to learn and live with the coronavirus, until there is a vaccine for it! Everyone who decides to adapt to the new normal will thrive and get ahead of the ones who are still going to live fearing the virus.

The elders and the young ones need to take extra precautions, but we will have to adapt to the high hygiene standards – use masks, face shield and hand sanitizers every time you move out of the house.

My wishes and regards to all of you, may we all come out stronger of this and thrive as we did before this episode!

That’s it for now! Until Next Time!

Mohit Kheskani