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Mr. Market Makes Money, Investors don't: From RK Yadav

Equities have generated close to 17% compounded annual returns over last 20 years. As an asset class, returns from equities are far higher compared to returns generated in fixed income, gold, silver, commodities etc over long period. Known big investors like Ramesh Damani, Rakesh Jhunjhunwala and many other successful investors have not made their fortune overnight. They have been investing for over last two decades. Investors do not understand or appreciate long term investment approach and the process which goes towards building wealth of such successful investors. Equity mutual fund schemes like HDFC Equity Fund (16 years: 21% CAGR Return), HDFC Top 200 (15 years: 15% CAGR Return), Reliance Growth (16 years: 21% CAGR Return) and many more such equity schemes have generated phenomenal CAGR return since inception. However, investors have not earned similar returns from their investments in equities over this period. An analysis shows that equity mutual fund retail investors have managed to earn only about 6% CAGR returns, which is quite shocking. Why such disparity between investors' return and market return? Following are some of the reasons, which have resulted into poor investors' return from equity.

Timing market:
When sensex fell to 8000 level in 2008, investors who had liquidity thought market will go down further. They waited to catch bottom. However, market recovered and sensex scaled 20000 in short span. Those who waited for the bottom, failed to invest and take advantage of lower valuation. It is just not possible to sell at the peak and buy at the bottom. It does not really matter whether you are investing when the sensex is at 10000 or 8000. Fear of further loss or Greed of buying at 10% - 15% lower valuation, resulted in opportunity loss of 100% or even more. Over last 3 years, the CAGR return difference between investing at 8000 or 10000 sensex level is not much or not worth the efforts of timing market perfectly.

Greed and Fear:
Investment history shows that most of the investments are made when the market is at peak or close to peak. If you chase momentum or fancy stock idea, you will end up paying fancy price for stocks and ultimately fancy losses. At the same time, due to fear of market sliding further, many investors exit when the market is at bottom. Investors invest in fixed income instrument when the market is at bottom to safeguard capital and invest in equities at peak of the market to participate in rally.

Stopping SIP during falling market:
Many mutual fund investors stop their SIP investments during bear phase. Only if SIPs are continued during such time, mutual fund investors can lower their average cost and buy more units when NAV is down.

Instant Gratification: Investors expect quick returns, whereas, equity investment is a long term process. Those who expect quick returns gets frustrated in short time and exit good long term stock. In short term, market is driven by liquidity and sentiment. Even the best of investment ideas may not deliver positive return. If you follow right investment process and invest in sound companies with proven management track record, returns are bound to come in long term.

Tracking Macro and Global events:
Nobody (including so called financial experts) has clear answer as to how events will unfold in US and Europe in near to midterm. In tracking global events too much, investors end up ignoring good investment opportunity. Markets have always generated very high return post big negative events like 9/11, Asian crisis, and market crash in the years 1993, 1996, 2001 etc. If you focus on good investment idea rather than too tracking too much of macro, international events and media, you are bound to make money.

As seen above, many factors are related to behavior aspect of investment. If you have right mental framework and common sense, investment is not so complex affair. You can not only match Mr. Market's return but also outperform it.

ट्श्र्टीण ओं वीक END

In a week driven by Greek indecisiveness, global markets experienced volatile trading and ended the week higher. Indian markets ended the week slightly lower on global cues. Globally, investors were glued to the G20 summit to see if concrete action emerges although it was overshadowed by Greece’s plan for a referendum on the bailout package. Also, markets were positively surprised by ECB rate cut and Federal Reserve reiterating its resolve to do whatever is necessary to revive the economy. However, recent events have only confirmed our fears that the implementation of Euro zone plan could take months, and may not be smooth sailing as wrangling among EU member states could complicate matters. Concerns on Italian debt has been rising with 10 year government bonds spiking last week. Bank earnings have been positive: Bank earnings have been positive, particularly in the case of large cap banks and private sector banks with healthy topline growth and improved asset quality trends. Earnings have been mixed in the case of PSU banks with some reporting asset quality deteriorated and increased loan loss provision expenses, in part given move to system based NPA recognition. Food inflation spikes further: Food inflation spiked to 12.21% last week v/s 11.43% in previous week. Despite increase, we expect RBI to pause in its policy tightening in December.

निफ्टी चैनल में ट्रेड कर रहा है

निफ्टी का ट्रिपल स्क्रीन ग्राफ देखने से साफ दिख रहा है की चैनल से बहार निकलने में दिक्कत हो रही है। मंथली ग्राफ से डबल टॉप के बाद रित्रेस्मेंट हो रहा है।

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History Suggests More Pain Lies Ahead for Investors
Is it time to start buying stocks again? The average bear market since 1960 has lasted about 14 months। It’s also resulted in an average 31% decline for U।S। stocks before a bottom finally formed. During the mildest bear market in 1990, the Dow still declined 21%. The worst bear market resulted in a 45% plunge from 1973 to 1974.Unlike the last bear market from 2000 – 2002, the sub-prime credit crisis triggered this bear market. Or in other words, the real estate market busted - compounded by soaring energy and food prices. The last bear, a first-class tech-wreck, ended in October 2002. During that bear market, the S&P 500 Index crashed a cumulative 41% and the Dow a dizzying 38%. The good news is that bull markets or big rallies follow bear markets. Those bull markets usually result in significant double-digit gains for investors. But the key is to avoid losing money in the meantime. You don’t want to get smashed during a bear market so another investor can recover quickly and begin raking in the profits once the primary trend changes.From its peak last October, the Dow and the S&P 500 Index have now declined a cumulative 19% heading into today’s trading. If history is correct, this suggests that stocks still have another 12% or so of losses ahead before forming a bottom. That means more pain lies ahead for investors in stocks. But there is light at the end of this dark tunnel. I’m finding a plethora of bargains worldwide right now. That includes big dividend-paying stocks that trade at a multi-year low. Many other large-caps trade at similar levels. This bear market will end - eventually. The first step to the next bull market is sharply lower oil prices. Until energy prices retreat, stocks will continue to suffer losses.

It’s a weekend and time for retrospection. After a long time, I am looking at nifty with a long-term view, by changing indicator parameters. Looking at the waves of market, the ups and downs of sentiments, I found it hard to decide which wave-pattern is interesting, the market or its sentiment. Just thought, I should share this with you guys.Take a look at the chart attached. Eight parts of this chart can be seen easily.First part: Period- October-November 2007,The market was bumpy, though it was in the up-trend, like a person not sure about the road, but goes ahead, hesitant a bit.The sentiment can easily be seen in the indicator going down.Second part: period- December 2007-January 2008,Market starts climbing breaking a sort of double top to make a new high. But the absence of confidence can clearly be seen. Like a person walking in the desert, sees water at a distance.Third part: period- Second half of January 2008,The water turned out to be mirage. All the hopes turned out to be dream. All the dreams shattered.The sentiment can clearly be seen in the indicator.Fourth part: period- February 2008,“I must pull up my socks. Market can go up. I should only have the faith in market.” This is what an investor should be telling to himself. Though the market is range-bound, the slow confidence building can be seen.Fifth part: period- first half of March 2008,The loss of optimism is reflected in the market downtrend.Sixth part: period- mid March 2008-April 2008,Classical example of what Vijay (Sainik) called as “Bull trap”. Positive market sentiment, the uptrending market, everything is like bullish market. But is it?Seventh part: period- May 2008-mid June 2008,“Kya hua tera wada, woh kasam, woh irada.” Similar sentiments can be seen in the market trend. Eighth part: period – post mid June 2008,Looks like the market is making efforts to come out of the depression. It’s too early to predict such things though. But if we believe Elliot wave principle, the latest down trend i.e. wave C of A-B-C, is perfect example of impulse –from wave 1 to wave 5, all in perfect shape and end of wave 5 means completion of wave C. And that means initiation of next motive wave i.e. the uptrend.So when Sainik says, “worst is over for the time being”, we tend to believe him. After all it’s a game of sentiment, isn’t it?But slight word of caution. Take a look at weekly chart. The sentiments are still pointing downward though it has recovered a lot from the bottom. No more bad news from the global market can boost the sentiments and market as well. Anymore bad news expected in future? If so, I will wait for few more days before coming to conclusion.