Art & Investing 🎨

 

The only rule is “invest”. If you “invest” it will lead to something.

It’s the people who “stay invested” all of the time who eventually catch on to things.

: Rule 7, modified

 

 

My 7-year-old and I have been working on a collage of bits and pieces of used and discarded things around the house. It has been an ongoing project for the past few years and has been a great way for me to introduce art to him. This weekend we cut a dinosaur from an old t-shirt and added it to the fantastical landscape we are building.

 

 

Which led me to think about the rules of art that I had come across previously and how some of them are applicable to investing as well. These rules are popularly known as the “Immaculate Heart College Art Department Rules” after LA’s Immaculate Heart Convent and are attributed to their alumna and celebrated artist Sister Corita Kent.

 

 

You will quickly notice so many of these rules apply to investing. Find a process that you trust and then try trusting the process for a while 😉

 

But the only rule that is in big large font, that towers over all others is the simplest one and usually the most overlooked.

 

The only rule is “invest”. If you “invest” it will lead to something. It’s the people who stay “invested” all the time who eventually catch on to things.

 

I see so many examples of people lionising their winners, especially on social media, and failing to mention that the stock that quadrupled had less than 0.25% of their wealth allocation and that 80% of their wealth is in cash losing out on inflation year in and year out. It’s an extreme example but it drives home the point. Stay invested according to your asset allocation and you will do much better than trying your luck on catching the next fad.

 

Take Gamestop as a recent example.

 

 

As the $GME frenzy peaked GME entered the top 5 most watchlisted US stocks on Kuvera. Only to fall off the list as prices collapsed. The retail investor that chased this frenzy got burned. Not just in India but in the US, new data indicate that regardless of the rhetoric, the majority of retail investors were last to the party and lost money on Gamestop while some other hedge funds made a killing.

 

Like they say in investing, a lot of new investors learnt some old lessons, in this case about the “behaviour gap“.

 

 

Coming back to the simplest rule – invest and stay invested is very relevant on two counts.

 

First, is what we call the “cash drag” – or the investor behaviour where they obsess about seeking out 1-2% more on the small amount invested in stocks while the majority of their wealth deflates in cash.

 

Avoid the cash drag on all counts. It is easier to make a simple 10% on 80% equity allocation than to spend a considerable amount of time and energy trying to make 40% on a 20% equity allocation year over year. A corollary for the same is, don’t book profits if you have no clue where you will re-invest them. Selling w/o a reinvestment plan is inviting “cash drag”.

 

Second, one of the leading question we get from our user and from media is how should an investor invest in market highs – should it be lumpsum or STP? Our research clearly says “lumpsum” has worked better 3 out of 5 times historically, both in India and the US. But more importantly, we caution that don’t fall into the “analysis paralysis” trap. Choose one, make your investments and move on.

 

We may agree or disagree on which one, lumpsum or STP, is a better way to invest during market highs, but we should all collectively agree that either is better than not investing!

 

So, if I were to now think of the smallest list of rules of investing, it would be:

 

1/ Invest and stay invested. If you invest it will lead to something. It’s the people who stay invested all the time who eventually catch on to things.

 

2/ Invest in the simplest security to achieve your goals. For example, over an investing lifetime, a simple index fund portfolio will perform better than your stock portfolio which in turn will do better than your options portfolio etc. And this is before considering taxes and investing behaviour.

 

Happy investing,
Gaurav
CEO | kuvera.in | @rustapharian

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Interested in how we think about the markets?

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