It has been forty+ years since India opened channels of corporate ownership to the public via equity market establishments. Another interpretation is that for forty+ years no one has figured out what makes the market tick. Many have tried, many have failed.
The hesitancy to participate in markets as a means of growing wealth is still in its rudimentary stages as many a soft hands now wear bruises. The disparity in wealth distribution is visible amongst participants, as the majority have learned while the minority have earned. The trick has always been to identify either what the majority got wrong or the minority got right. The gap in between is explained by/as the secret of successful investing. In a chain-link, it is phrased as two parties – one answer – one secret.
The secret? – your time in the market. A secret so vividly and loudly talked about, it does not even chartered being recognized as a secret.
The minority endorse traits which the majority nod to willingly but rarely ever practice. The trait in question is to stay patient most of the time, and aggressive when it’s the right time. These words are an echo of one of the world’s most celebrated investors – Mr. Charles Munger.
On thinking loudly, you will realize its actually more difficult to go opportunity-hunting on the daily than to tune yourself out completely and let the stock market do what its designed to do. There is a reason the world’s most successful investor Mr. Buffet says, “Stock markets are a mechanism of transferring money from the impatient to the patient.”
The balance between self’s inaction and the market’s actions is where the sweet spot lies. As is known, markets are no foreigners to dealing with crisis of different types at different times. It has borne the brunt of many era-defining (global and domestic) troubles in Dot-come bubble, SARS, Global financial crash, Demonetization, GST and Covid-19 in naming a few. Through It all, the only strategy that has yielded affirmative investor result has been the one requiring wealth to stay mute.
The graph below shows the pains the markets have traversed to deliver investment gains to those who stood their ground:
An investor who invested on the eve of this millennium and did nothing in the interim, would today realize an XIRR of 11%, or wealth growth of 9x!
Writing as of date, Covid 19 will soon become a feature in the history books as markets will gear up to fight newer tensions. Your wealth in the long run will be printed by your actions in the short-run, especially in times of tensions. Occurrence new events will drive new abrasions, seeing markets spiral downwards only for it to come back with a vengeance. Every crisis has taught us that, even this millennium’s biggest health pandemic so far. Last year this time, markets were riddled with uncertainty falling to ~7,600 vs today it standing tall at 15,000+ levels.
To further ease your tensions, the graph below shows how common an occurrence it is for markets to see downside volatility only for it to bounce even higher as a rebuttal.
If the same data were to be stretched over forty years (inception of BSE Sensex), the index delivers average annual calendar year returns of 20% vs average drawdowns of -21%. Also, over the tenure, Sensex delivers calendar year negative returns just 9/40 times!
The data above is evidence enough to prove that troughs and peaks are part-&-parcel of market behavior. It is these erratic movements which make markets what they are.
Now circle back to the secret in making money which is to stay invested. It sounds very simple in principle but is super effective in practice. Mastering this behavior means you don’t have to worry about which virus hits next or what vaccine turns out ineffective. All you need to know or do is to realize that inaction is often the smartest action.
As an investor pro-tip, don’t go about doing permanent damage to temporary problems.
Spread the word and be a part of the minority today. And for when you stumble, we fisdom folks are always to hand-hold you through your investment journey.
As always, we excitedly await to hear from you.
Till then, have a good weekend