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Index. Sit Back. Relax

Written by - Siddhartha Gupta

March 4, 2021 4 minutes

Anybody who has ever entered the stock market has only had just one thing in mind – to beat
the damn thing. Double the money, I say! Triple it! And do it before my next birthday. It’s ironic.
The market’s gone up and up these past many decades, and yet, strangely, no money manager
will ever say that getting the market’s returns is a worthy enough goal.

So then, how do you beat a system that has millions of participants, each playing by his own
rules, and all of them essentially blind to one another?

An easy answer is, well, you don’t. A better answer is, you could try. How difficult could it
possibly be? All you need to do is buy low, sell high. Time your entry and exit right. Right?

But how do you do that? How will you know which stocks or funds will shine? How do you know
the time is right? There are so many companies, so many variables to consider. There are
company financials, business models, managers’ motivations, corporate structures, industry
dynamics, and government regulations. There are also, of course, Reddit and Covid, and Elon
Musk. So, how?

Enter your friendly neighborhood uncle who moonlights as an investment advisor. He tells you
that he has algorithms (you know, some ‘coding things,’ really hi-tech and all that). He tells you
he has ‘clients’. He also tells you he has experience, and that he will add you to a Whatsapp
group where he shares all his experience. That he will do all the hard and boring work so that
you don’t have to. He asks you to trust him.

You ask him what his services will cost. He says, oh not much, anywhere between 1-3% of your
investment value. You think about it for a second. It doesn’t seem like a lot of money. The uncle
looks like a value proposition.

Except, you read somewhere that the percentage of uncles who have actually managed to beat
the market consistently, out of all such uncles who have ever existed in the world, is actually in
single digits. There is a greater than 90% chance that the market will do better than the uncle.
Besides, his commission will eat into any gains he might be able to get you over and above the
market. Who knows, over time, 1-3% might make all the difference in the world!

You ask yourself if it’s worth it. Is it not better to just sit back, relax, and piggyback on the
market, rise as it rises, let the gains build over time, like a bucket under a dripping tap that
eventually, overflows?

Drip. Drip. Drip.

All that the market asks for is time. The market chooses the stocks for you. The market makes
timing irrelevant. The market requires your patience. That may not be such an unreasonable
request. After all, good things take time.

You can be certain that the Market, on the whole, will rise over time, as it has in the past. Your
money will grow. What is ‘Market,’ if not a reflection of the world we live in? As the world has
advanced over time, become a better place, the growth has reflected in wealth creation across
the globe. People are richer, happier, better off. They have more choices.

Sometimes, the best thing to do is to do nothing. Put your money in low-cost index funds, for
example, and forget about it for a while. Don’t grab the bull by the horns when you know you
cannot control it. Don’t play tricks with it. Let the market do its thing.
Who knows, it might even surprise you.

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