4 Money Fixes You Must Not Postpone

Four money fixes you must not postpone

- Deepika Saxena

A whole lot of noise usually accompanies market rallies. You have all sorts of experts, providing opinions on what will happen next and what you should do.

In one of his popular columns, Dhirendra Kumar emphasised the importance of distilling the signal from the noise to make sensible investing decisions. But that’s easier said than done because when it comes to investing, the signal-to-noise ratio is relatively poor.

To quote him, “The signal-to-noise ratio (abbreviated SNR) is a measure used in science and engineering that compares the level of the desired signal to the level of background noise. When using electronic devices, you could hear the noise as a hiss behind the music. In investment research, you hear the noise as news, views, data and analyses that sound like they should be relevant but are irrelevant or misleading. The actual signal-to-noise ratios are much, much worse in the latter. In audio equipment, the signal-to-noise ratio is generally far below 1 per cent, meaning what you hear is an almost pure, unadulterated signal. In investment analysis (along with business and economic affairs generally), you would be lucky to have less than 90 per cent noise.”

So, what’s the solution? Perhaps, the skill at picking the signal from the (overwhelming) noise comes only with experience. As Warren Buffett says, “Investing is simple, but not easy.”

But for the benefit of our readers, we distil the most important signals you need to pick and act upon amid the most unanticipated bull runs in the history of the Indian markets.

In this article, these signals stretch beyond the realms of equity investing. So, ignore them at your peril.

Revisit your asset allocation when the market condition changes. Sell off a part of the asset class that has gained and invest in the underperforming one to restore the original asset allocation.