Our most important value is integrity. No matter who our direct client is, we are always aware that in the end, we are managing someone’s hard-earned resources. We strive to deserve their trust in our character and competence.
Why LFS-PMS?
Why Invest for Long Term?
The businesses, over long term, are poised to do well. Economies and businesses typically move in structural and temporary cycles of leap and trough. A lot of new industries emerge during these cycles, due to ever changing technologies and aspirations, which provides enormous opportunities for an entrepreneur to build their business. These cycles equally bring opportunities for investors which, if harnessed well, can create immense wealth for them. We have witnessed several such phases in the past be it Information Technology boom in 1999 or Infrastructure boom in 2007 or Pharma boom in 2015.
In the financial world, while investing in equities, we encounter two types of risks: Systematic Risks and Unsystematic Risks. The risk of a system-wide negative event, such as a war, global financial crisis, etc is considered to be a systematic risk. Unsystematic risk is the risk of a specific negative event affecting an investment position, as a factory fire. The former must be accepted as a possibility of life, however tiny the probability may be. The latter can be mitigated by owning a diversified portfolio of assets. Here in LFS, we try and minimize unsystematic risks so as to generate stable returns for clients.
LONG TERM INVESTING V/s SHORT TERM INVESTING
Long Term Investor
While investing for long-term, focus is more on the quality of company and the way business is manged by the management – its product profile, strength of the brand, capital allocation policy, etc. The focus is not on the share price and its volatility. Infact, volatility in the share price is best used to buy the stocks at bargain prices. The definition of risk, while investing for long-term, is the probability of permanently losing a material portion of investors’ capital over reasonably long period of time. The investor should not be threatened by short-term movements in asset prices. He should be more focused on specific, capital-threatening risks that he can avoid, control for, or diversify away.
Short Term Investor
For short-term investor (and also the leveraged investor) volatility in share prices is risk, given that he invests for short-term. Worse still, it’s a risk he cannot control or anticipate. An investment position could move against him due to a completely unpredictable macro-economic event and the position’s fundamental drivers would have no time to produce a recovery. Or a large move in a leveraged position may completely wipe out a position even though the underlying asset may go on to do just fine. ‘Panic’ response is a human emotion usually felt by investors when confronted with large threats we cannot control, which damages portfolio. This response by fellow market participants is irrelevant to the long-term investor.
Thus, we have two types of risk — volatility, and the probability of permanent loss of capital — and their respective beholders. In a market with these two types of investors, the long-term the investor has a distinct advantage. In down markets, he uses volatility and the short-term investor’s reaction to it, to enter fundamentally sound positions at attractive prices. In bull markets, the long-term investor can reverse the process by selling to short-term investors
when the latter is focused on the flip side of volatility: expected returns (i.e. the temptation to make a quick buck). Some people call this strategy ‘time arbitrage’.
At LFS Broking, we definitely take the long view. We strongly recommend you do the same for at least a portion of your savings.