A good lesson for investors

A Very Good Story for Investors

This is a wonderful story which I have come to know from one of my fellow advisor, and it is the story of Chinese bamboo, which I think I must share with you. 

Unlike other trees, growing Chinese bamboo requires lots of time and more of passion.  It takes 5 years and 3 months, that is almost 63 months for Chinese bamboo to grow to the height of 80 feet. So, what’s so unique about this tree?  It’s very good for any tree to be grown to 80 feet in 5 years and 3 months.  

The height to which Chinese bamboo tree grows is not unusual, but the way it grows is very unusual. As for almost 5 years you keep watering the place where you have planted the seed of Chinese bamboo on daily basis without fail, but you don’t see a hack growing out of the soil. 5 years of watering and passion!!! Huh!!! That’s long time. Still during all this time, you see noting but just a small sprout coming out of land which can be measured to couple of inches if you are lucky. In many cases nothing’s visible above the ground for 5 years. After 5 years you can see the first sight of the green small bamboo trying hard to coming out of soil, and that small Bamboo which gave its first appearance after watering the soil for 5 years, grows to 80 feet in less than 90 days. Yes, it’s true. 
 

 

Sometimes the waiting period fluctuates from 4 to 6 years, but the sure thing about the Chinese bamboo is, it’s definitely going to start growing and once it starts growing the speed is definitely going to be unusual. It definitely will reach the height of 80 feed from ground zero, which is equal to the 8 storied building, in the small period of 6 weeks to 12 weeks.

There are great chances of person quitting the idea of growing Chinese bamboo due to the long waiting period. Everyone can find the soil and plant the seeds and also can start watering it, but when it comes to waiting, sooner or later many drop the idea. Only few who keep watering the soil consistently with full faith, can get the 80 feet high bamboo tree. 

Equity investment is also like growing Chinese bamboo tree. One should have passion after planting the seeds. All know that the Chinese bamboo tree takes a time to start growing but once it starts it grows rapidly to the 80 feet. The same way, in case of equity investment also we all know that after investing you should wait for long time but in practical world very few have got that passion to wait.  

You do your own homework or take an advice from someone regarding the best equity stock or equity Mutual Fund scheme. Then you plant your seed of investment by opening up the investment account and start investing into the equity and wait... and wait.... and wait. You are very discipline in watering the plant of your investment seed with the regular investments. Neither market nor your investments are moving anywhere, on the other way it starts falling and eating away the value of your money. You still wait... And wait. Oh sure, you have been told by people that it takes while to grow your money into equity and you are also ok with that. Because you believe “waiting for while is surely going to pay you the premium”.

Year one is over and you are entering into the second year.  You are still watering but started being a little bit of sceptical about the power of your investment seed to grow. You continue to wait and keep on reading and researching about all possible and so called temporary negative factors which are stopping your investment to grow to great heights. Though you have earned nothing, you are a man of persistence and not prone to giving up. But seeing no result is making you to doubt about the power of equity investment. Anyways, you have heard about so many other success stories about many successful people who also invested into the same market and made their fortune. So you kept on watering your seeds by regular investing  your saving into it.

Now, it has been three years and you started wavering and doubting about your choice of investment seed. Some voice inside of you have started telling you that you are a special kind of a fool to believe into the something which was too farfetched. You start thinking about other possible seed which you might have planted instead of equity. You really feel being fooled when someone tells you that they are earning a great fixed income starting from day one by investing into the fixed deposit. You wonder why you had to pick up an equity investment only. You start losing sight of your purpose and your faith starts to diminish…You decided to re-commit yourself for the entire third year. 

Now you’re entering into the fourth year. You are becoming more disillusioned and are experiencing a deeper sense of doubt, regret, frustration and anger. You started wondering,

“Is it when I invested was a wrong time?”
“Perhaps, my Luck isn’t strong enough for my investments to grow.”
 “Could it be that I am hanging out with crazy people and who are lying to me?”
“Am I just too proud to accept defeat and nothing is really going to come out from this?”
“This couldn’t be my fault… my investment advisor gave me wrong advice.”

You were going crazy, because you’ve already spent a lot of time and invested a lot of money. So after the years of lot of dedication and effort toward this investment, you have decided to give it a chance for one last more year. 

It’s a whole lot of 5 years wasted on investment account with regular watering by keep on investing into it every month, but alas!.... nothing happened. So you decided to QUIT. And you withdraw your money with no or little profit which is less than the interest of bank fixed deposit.

The day you QUIT, the equity market starts taking small upward leaps, and you wonder what’s happening. Within couple of years the bamboo of your equity starts growing rapidly and grows to the newer height but unfortunately you couldn’t get anything out of it.

Equity is just like the Chinese Bamboo, it’s possible that it doesn’t give you any return for years but then in very small period of time it starts growing with the unusual and unbelievable speed which eventually you compensate for all your dedication, passion and faith.

Looking at the history of the Indian market, whenever it has not moved upward for few years, it is always followed by a strong bull run that too in very fast speed. Take an example of the period, starting from Feb 2000 to December 2007. During this time the Indian equity market delivered the return of approx 240% absolute (Sensex went up to approx 20.5k from 6k). But if someone entered into the market in Feb 2000 and kept on investing for some time would surely have got frustrated, as after almost 4.5 years, market gave no return. The Sensex was trading at near to 6k in Feb 2000 which went down to 2600 and again in Nov 2004 it came back near to 6k. Now the time of 4 and a half year is long time, isn’t it?

Many of the investors left the train in between and thought of it as a worst mistake to invest into the equity market. But after 2004 it started its nonstop journey and in next 3 years it grown to 20k PLUS. Equity market gave approximately 240% absolute return in span of 7 years, but to get those returns, one has to plant the seed and wait for 7 years. Wherein, for the first 4.5 years, returns were either not present or negative.

Now let’s compare someone planted the seed into the December 2007 itself and waiting till now he has not seen any sign of investment tree growing.  There is no sign of return (Bamboo) so what? It’s definitely going to start sometime in near future, once it starts the speed will also be definitely UNUSUAL.

Be faithful and keep watering your Chinese bamboo tree.

(This article has been contributed by a fellow financial advisor Mr Jigar Parekh from Prudent CAS Ltd, Ahmedabad and it first appeared in www.wealthforumezine.com on August 03, 2013)

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner