“Where will the markets go from here?” Ravi asked putting the coffee mug down.
“Why are you asking that?”
“You see Sensex has hit 30,000. The markets are overheated. Do you think I should book some profits?”
“Why? Do you need the money?”
“No, I am just… scared. What if the market falls, the gains made so far will be lost.”
“Don’t worry. Even if it falls, it is likely to come back in due course. And what is this all time high worry. If the markets don’t reach their all time highs, how will they move forward. It is just one step in the journey.”
“I understand that. But everyone is saying, there will be a correction for sure.”
“How much will they correct? And won’t they rise again? Are they talking about that or not?”
“Umm. Not sure.“
“You see all these talking heads cater to the trading mindset. You shouldn’t worry, you are a long term investor.”
“Whatever that means.” Ravi was skeptic.
“It means you are looking to build wealth over many many years by withstanding short term pain and refusing to submit to the herd mindset. You need to think differently.”
“Oh!” He said wondering if the traits apply to him.
“Amazon.com CEO Jeff Bezos said in a 2011 interview with Wired – (source)
“If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue.”
You can use the same thinking in investing too and build your own advantage as a long term investor. Build a different perspective. Forget about Sensex hitting 30000. You should gear up for Nifty 30000.”
“What? Nifty 30000. Are you crazy? Nifty just closed at 9300. ”
“Yes, that’s right. But do you know where was Nifty in July 2006?”
“Not sure. I didn’t used to look at it then.”
“No problem. Nifty was at approx. 3100 then. So, in a little more than 10 years, it grew to 3 times and is today at 9300. That too with all the pain and suffering that it had to endure in the last 10 years. It is quite likely that in the next 10 years or so, it would again be 3x of where it is, which means closer to 30000. What say now?”
“Wow! That sounds good. But what makes you so sure?”
“I am not sure. I am just talking a likely possibility.”
“What does that mean?”
“See at the end of the day all the indices such as Sensex or Nifty represent the growth that happens in the underlying companies. The past decades growth was reflected in the index. And is likely to be happening in the next decade too.”
“Makes sense. So, I shouldn’t be selling?”
“Not unless you hold some duds or you need the money or you have found better investing opportunities.”
“I don’t know about specific ones, I have all the money invested via mutual funds.”
“In that case, just let it be. The fund managers are doing the job of buying, selling, booking profits for you. Don’t be a pseudo fund manager. Unless you think you don’t have the right fund manager and want to change the manager itself, that’s a different thing.”
“Ah, that way! May be not. I am ok for now.”
He continued, “So, Nifty 30000. That’s quite bold. What will it take for an investor like me to make the most of this?”
“It will take a lot. It will be THE test of your patience. There will be volatility as usual. You may also witness another 2008-09 kind of a period or worse. And you will need to have staying power of the size of the Himalayas.
Finally, don’t bother too much about the markets and indices. They are broad parameters. What makes you money is your investment in actual stocks or mutual funds. If you invest right and sit tight in this period, you will build wealth. If you do too much activity of in and out, it could be detrimental.”
In the table below, look at the 10 year SIP returns of some of the funds in the flexicap/multicap category.
Read more: Understanding SIP
An investment of Rs. 10,000 per month for 10 years starting April 2007 yielded the following results. The total investment is Rs. 14.4 lakhs. The table shows various fund schemes, the current value of the investment and the annualised return using XIRR.
Source: Unovest. Data as on April 30, 2017. All are regular plans with at least 10 years of existence. Direct plans came into existence only in 2013 and hence not included. All returns are net of expenses. None of these funds should be construed as a recommendation. They are used only as examples.
Nifty based index mutual fund is used for comparison as it reflects the total returns. The outperformance is vis-a-vis an investment in the Nifty based index fund. Going forward, the out performance may not be so high. So, it is all the more important that you choose your funds right.
The important thing to notice is that the money was invested through various market conditions. The investment suffered all the market volatility and has come to the point where it is today.
“Got it. Basically, you are asking me to suffer like Buddha before I reach my enlightenment.” I smiled. “See, you got it.”
He added, “I guess even if I don’t have the staying power, I will tap into yours.”
Suddenly, the gentleman at the next table turned around to us and said “Nifty 30000. Interesting! Can I get some investment advice too?”
We all broke into a laughter.