Sylvia Bloom was a legal secretary who worked at the same firm for nearly seven decades. She lived with her husband in Brooklyn, a modest, but comfortable life, riding the subway to work most days. When she died in 2016, her net worth was in the vicinity of $9 million! Apparently, she just bought stocks that her bosses did, and held on to them through highs and lows. When she died, all the money went to the charities mentioned on her Will.
Equity is the one asset class almost every investor must have because it has the potential to outpace inflation and taxes. We earn, save and invest so that our investment corpus grows substantially. Equity is an essential component of wealth creation.
Having said that, it is difficult to make money as a speculator. When you are a speculator, you have to constantly monitor market movements, anticipate where it is headed, and try to profit from it. It is risky and time consuming. ‘Profiting from market fluctuations’ sounds like a high-stakes games and gives a thrill. Not to mention that it makes you sound brilliant, daring and exciting.
A long-term investor wants to acquire a good investment, and hold on to it for years. Buying and holding sounds mundane, dull and terribly boring. But to be a successful investor, which means you create wealth out of your investments, one really needs to have patience.
In a volatile market, many speculate as to whether a bear market has started, or a bull run will start by the end of the year. During such dramatic times, you will have to restrain yourself from pulling your money out when everyone is heading for the exits. This is why a look at history helps. You will see that the stock market has been through worse, and triumphed.
Look at the drama played out over the past three decades that impacted the stock market.
1997: Asian financial crisis
2000: Dotcom meltdown
2001: India-Pakistan stand-off that brought both sides close to war
2001: 9/11 terrorist attacks on the Twin Towers in New York
2003: War in Iraq
2008: Global Financial Crisis
2010: European debt debacle
2013: Indian market reeled under talks of tapering by the US Federal Reserve, sending the INR crashing in an economy that was already battling with a slowdown
2015: De-pegging of the Swiss franc, Renminbi’s devaluation, Greece on the verge of crashing out of the euro, bursting of China’s stock bubble, a bloodbath for commodities, sliding crude oil prices
2016: Demonetization in India
2020: brutal bear market as the world went into a pandemic-induced lockdown
2022: Russia-Ukraine war
2023: The ongoing conflict in the Middle East
2024: Presidential election in the US and General Elections in India
2025: Trump’s tariff war impacting China, Mexico, Canada, India and other countries
And this is just the past three decades. The stock market never promises a smooth ride. There are extreme events and frightening crashes. The regularity of market crashes and declines is a reminder that patience is key to investing in equity markets. Those who stay invested, or continue investing in downturns, will benefit from the upward trajectory.
The wealth creation opportunity is immense if you do this:
- DO hold on to what you have invested, a downturn is not the time to sell
- DO continue with your systematic investment plans (SIPs)
- DO invest lumpsums during downturns if you have the money
- DO not be afraid to ride a bear market, as renowned investor Shelby Davis once remarked, “you make most of your money in a bear market, you just don't realize it at the time.”
Equities have the potential to deliver superior inflation-adjusted returns over the long term. They are the most favoured asset class for wealth generation and should form a part of an investor’s portfolio. But to create wealth, you must have a long-term mentality. Without this mindset, you will never have the patience to endure. As Warren Buffett famously said, “the most important quality for an investor is temperament, not intellect.”
What is temperament? The ability to hold back from knee-jerk reactions, such as selling in panic when the market drops or stopping SIPs. It is the discipline to not lose sight of your pre-determined asset allocation. During a market rally, investors tend to tank up on equity with complete disregard to asset allocation. In a down market, they frantically reduce their equity exposure. And when the market eventually rebounds, they are the ones who missed out on all gains.
If you act on sentiment and emotions, and react to the news, your chances of creating wealth are slim and you become your portfolio’s enemy. Develop patience. It is a great asset to have in the stock market.