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The Jet Airways Experience – lessons for investors

Many investors prefer to have direct ownership in stocks. Remember that this route has its risks, with companies like Jet Airways, Kingfisher, Reliance Communication, Unitech, etc being prime examples. Nearly 70% of companies ever listed have faded away. One needs to have reasonable expertise before investing directly in stocks.

As one entered the airport on April 18, 2019, it was sad to see the airport without Jet Airways. Honestly, as customers, many of us have personally enjoyed the Jet Airways experience – be its quality of service, timelines or just the food. Jet has been around for over 25 years offering great service to customers, but the last few months will probably make most regular fliers feel bad. It is a sad day.

Till just a few weeks back the company’s revenues were Rs 65 Cr per day (approximately Rs 24,000 Cr last year) and suddenly its revenues today are non-existent. It is reasonable to assume the airline will get back on track and reach out to the skies again (and most regular fliers want it to), but the incident does have its lessons for equity investors.

1. Predicting which companies will survive is difficult

Many investors prefer to have direct ownership in stocks. Remember that this route has its risks, with companies like Jet Airways, Kingfisher, Reliance Communication, Unitech, etc being prime examples. Nearly 70% of companies ever listed have faded away. One needs to have reasonable expertise before investing directly in stocks. If you don’t have the expertise, do leave it to professionals to manage your portfolio.

The Indian economy is a fast growing economy and it is easy to predict that companies operating in the economy, at an aggregate level, will do well. It is difficult, however, to predict success of companies at an individual level. Build your investment strategies around this core principle.

2. Diversified portfolios are better than concentrated portfolios

For most normal investors, who are investing for the long run, holding a diversified basket of companies is better than having a few concentrated bets. On one hand, concentrated investment portfolios can lead to big returns (ask people like Premji, Bill Gates or Warren Buffett), on the other hand, it has its downside risks as well.

3. Companies will do well on the aggregate, but they are difficult to predict at an individual level

The Indian economy is a fast-growing economy and it is easy to predict that companies operating in the economy, at an aggregate level, will do well. It is difficult, however, to predict the success of companies at an individual level. Build your investment strategies around this core principle.

4. Equity Mutual Funds should fit most investor requirements

If you believe the Indian economy will do well, and companies at an aggregate will do well, it is better to participate in the growth of the Indian economy through a collection of companies owned by equity mutual funds. It is one of those approach strategies that require minimal thinking and the approach strategy can last a long period of time.

Fortunes of companies might change but an investment strategy built on certain common sense approaches will ensure your fortunes change only for the better.

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