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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Don’t Miss

Posted by Muthu on July 21, 2014

If you’ve invested Rs.1 lakh in Sensex on 30th April 1979 (Sensex @ 126) and did not disturb it until 31’st May 2014 (Sensex @ 24217), it would have multiplied 192 times and become Rs.1.92 crores. This works out to an annualized return of 16.2%.

This piece is not to explain how equity multiplies wealth over long run. You know it from many of our earlier writings as well. There is an ad campaign going on for Reliance Growth Fund explaining how the money invested in the scheme has multiplied by 65 times (annualized return of 25.05%) in less than 19 years. You might have seen the same. If you are patient, equity multiplies wealth. Period. Patience is the name of the game.

We saw that over 35 years Sensex got multiplied by 192 times. Let us assume you missed the best 40 days spread over the above 35 year period. Then your money would have multiplied by merely 10 times instead of 192 times. 40 days over 35 year period is just 1.1 days per year! So hopping in and out of the market can dent your returns very significantly. Regular investing and staying for a long time (which would include the best days as well) is the way to build sustainable wealth.

Please see the complete data below:

Stayed invested for 35 years – 192 times- 16.2% per annum
Missed 10 best days- 68 times- 12.81% p.a
Missed 20 best days- 33 times- 10.5% p.a
Missed 30 best days- 18 times- 8.6% p.a
Missed 40 best days- 10 times- 6.8% p.a

It is clear that if you’ve even missed the 10 best days, instead of getting 192 times your wealth, you would have got only 68 times. Just missing 10 best days over more than 3 decades costs you so much.

Markets tend to go up sharply on a few days, then consolidate for long periods and then go up sharply again over a few days. So just missing these days can bring down your returns drastically. It is impossible to predict the best days in advance and we would come to know of the same only in hindsight.

So don’t try to time your entry into the market. SIP is the way. What matters is how long you stay invested so that you catch as many best days as you can and maximize your returns.

Start early. Invest regularly. Stay the course. Get wealthy.

All the best.

(This piece is written based on the data and content provided by Sundaram Mutual Fund in one of their advertisement / promotional literature).

3 Responses to “Don’t Miss”

  1. Litan said

    What exactly is definition of best day ? Is it a local minima in the market ? how are these best days picked in hindsight analysis ?

  2. Ajay said

    Hi,

    If you could also add asset allocation data to the above it would make the above post most interesting.

    What happens had the investor invested a 50-50 in equity and debt. I remember that in 1990’s until almost 2000, the bank deposits at some point of time provided near about 14-20% interest rates. In this case he would have booked profits in most of the bull runs and would have re-invested the booked profits in so many crash points (in fact there were many crash point until Aug 2013) and even fixed deposits would have provided 14% returns on the debt folio.

    As per Franklin Templeton MF,although the funds have delivered decent risk adjusted returns since their inception, it is very few investors (in 100’s only) who remain invested in their franklin bluechip and prima plus funds since inception (20year period) and therefore many missed out on the wealth multiplication by booking out at different points.

    For an investor with very little or no knowledge about the market times like Sep 2008, March 2009, August 2013 would have been very difficult time to digest (to see his value of folio going down significantly, although he should have welcomed it to invest more at these points) and many would have either pulled out or at best waited for return of capital (thinking loss is recovered) and have pulled out (as you are seeing currently in the news there is lack of retail particpation or retail investors are booking profits, they are not booking profits, there are recovering inflation adjusted capital probably without loss) . However, had one followed an asset allocation of 50-50 or say 25-75 (as per risk profile or risk bearing capacity), he would have had sufficent funds from the debt folio to shift in to equity at this superb entry points, which could have enhanced the returns. It is also vice versa in case of Dec 2007, Jan 2008.

    The point is that although staying in would have multiplied your wealth, asset allocation strategy would have made you invest more in difficult times and allowed profit booking at times. This would have enhanced your wealth multiplication. While, I dont have stats on hand, but I am sure the asset alloction strategy would have been more benficial to an investor with minimum voltatility in the portfolio. Also, such an investor would always welcome a market fall and not get scared of it.

    In my opinion, the asset allocation, time in the market (10, 15, 20 Years), regular investing and incerasing the investment during the steep falls (2002, 2006, Sep 2008, March 2009, Aug 2013) are the ones to minimize voltaility and provide excellent returns.

    Regards

  3. Kiran said

    Unfortunately, it is a misnomer that one could have invested in Sensex and held on. Sensex has undergone many changes.

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