Equity investing is now under so much research and eye glazes because it is at a point that nobody has seen. Nifty crossed 10000 this week for the first time in history. Our philosophy has been that Equity is long term investments and market levels do not matter to us. But this milestone can be used to learn a key lesson… Equity is Marathon and not a sprint. Let me explain you this using the NIFTY data.
When market crosses a milestone investors start thinking …
Will the dream run continue?
If my one-month absolute returns are 4%, does it mean I will get 48% this year?
No, or may be yes or may be more than 48%…
but it does not matter because equity is not for a year, it is for more than one economic cycle.
We believe that equity investing is Marathon and not a Sprint. Participating in these sports, require different mind set and preparation. Both physical and mental toughness.
As mentioned Nifty 50 Index crossed the 10000 mark. Let’s see if this 1000 to 10000 was a sprint or marathon.
Nifty 1000 to 10000
The NIFTY 50 Index tracks the performance of a portfolio of the 50 largest and most liquid Indian securities. The companies are filtered for liquidity on the basis of impact cost which is the cost of executing a transaction in a security in proportion to its index weight, measured by market capitalization at any point in time.
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The index is rebalanced on semi – annual basis. The cut-off dates are January 31 and July 31 of each year, i.e. for semi-annual review of indices, average data for six months ending the cut-off date is considered.
NIFTY 50 Index has an inception date of November 3, 1995.
The ride is a roller coaster one…
Nifty took 26 Years 7 Months & 18 Days to achieve this milestone of 10000 points!!!
An Annualized Return (CAGR) of 11.2% !!!
Since Inception. Till 25 July 2017.
But look at the sprints it participated. Some were like Formula 1 and some were like drunk elephant dance.
Benefits of participating in a marathon
There are 2 most important benefits. These are:
- When you invest for long the Return Vs Risk ratio goes down. That means the probability of loss goes down.
- With time the small phases of Run & Fall average out and smoothen. The volatility in the portfolio goes down drastically.
Same happened with the Nifty journey:
When we interact with investors we get a lot of reasons to “book and run”. Some of these are:
- Without profit booking how will I know that I have earned? I do not believe in paper profits.
- Markets are opportunistic. If you sleep you will be left behind.
- I am a small fish and market is controlled by giants. How can I survive?
Well my response is:
- One must book profits by way of asset rebalancing. Yes, yearly you should do that. This is done when you do a proper asset allocation and then invest. Otherwise, there are plenty of misguidances available to make a profit on YOUR PROFIT. Here is what we wrote about Profit Booking.
- Markets are not opportunistic they are an opportunity to hold your shares in leading corporates. You can buy a stake in companies through markets. So when you buy you should stay on course to see the growth too. Unnecessary churning increases cost – both investment cost and your health cost (stress is the 2nd largest killer after stroke)
- You are a giant too when you ride products like mutual funds. It is an organized player with benefits of large size and research. In case you are going for the direct equity you should be equipped with research and information on what you are investing into. That’s basic requirement to counter volatility.
Here is what the leading Fund Manager of the largest Mutual Fund in India has to say:
I congratulate everyone who stayed on course (may be a major part) during this journey. Remember it’s a journey and 10000 is just a milestone. We got to see more milestones provided we keep RUNNING the MARATHON.
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