This is the archive of all articles and analysis related to the nature of stock market risk and reward
How much return can I expect from the stock market? What is long-term in the stock market? What is the risk associated with the stock market? Regular readers may be aware that I have discussed these questions with returns and risk spreads from time to time. In my most comprehensive analysis, Sensex return charts for…
Continue reading →On 4th January 2008, the Nifty Next 50 index (then Nifty Junior) closed on 13069.35. We now know that was the end of the last great “true” bull run. On Dec 31st, 2008, the index closed at 5443.11. An incredible fall of over 58% in a year. The Sensex/Nifty peaked four days later on 8th…
Continue reading →Yesterday (26th July 2017), the Nifty 50 closed above 10,000 for the first time. In this post, let us discuss what we can learn from its journey from 1,000 to 10,000. This post is inspired by a comment from Ravikiran Suryanarayana: “How many of you noticed that it took 7 long years for Nifty to…
Continue reading →Here is a short compilation of step by step guides and tools to screen stocks and identify financially sound and good businesses. 1: A guest post by the mature and level-headed Krishna Kishore: A Guide to Understanding Stock Screeners Krishna is a regular speaker at the Bangalore DIY investor meets. 2: A guest post by the erudite Indraneal…
Continue reading →Shall we try out the following experiment? Pick a fund that you invest in. Say Quantum Long Term Equity or PPFAS LTVF or HDFC Balanced. Enter all the transactions in that fund(s) in a portfolio tracker. Then add a couple of index mutual funds like Franklin Nifty Fund or ICICI Nifty Next 50 fund. Use the same…
Continue reading →Between Jan 21st, 2008 and July 6th, 2009, the Sensex witnessed 11 single-day falls of 700+ points. The highest was 1,408.35 points on Jan 21st. In this post, I discuss the simple arguments put forth by Edgar E Peters to understand why such stock market crashes occur, in his book, Fractal Market Analysis. It is human nature to try…
Continue reading →Here are five unique books that will will completely change the way you think about stock market risk and reward. They have certainly shaped mine and my first ever financial calculator was based on one of them. The books will bust established myths about the market – its so-called efficiency, mean reversion, and the way we measure…
Continue reading →I discuss ways in which we can visualise and interpret the annualised return, also known as the compounded annualised growth rate or the CAGR and volatility of returns. Franklin India Prima Fund had a NAV of 201.75 on April 3rd, 2006 and a NAV of 878.5 on 12th April 2017. What is the annualised return?…
Continue reading →Concerned that the stock market is overheated? Here is why it makes sense to focus on the risk associated with the money already invested and not worry about investing more. Suppose, I have a long-term goal and I can only spare Rs. 500 towards an equity SIP. I choose a nondescript mid-cap mutual fund and start…
Continue reading →While discussing the distribution of wealth in India, I had referred to the idea of self-similarity with the example of the Pareto principle. Today I would like to discuss how the stock market behaves in a similar way! The first part of this series is here: Fat Tails: The True Nature of Stock Market Returns –…
Continue reading →In a two-part post, I discuss the nature of stocks market returns, first by pointing out the influence of extreme market events and then by considering their fractal or self-similar nature. Readers may recall that last week, we considered self-similarity in wealth distribution where I had mentioned their universal nature. Both posts in this series shall deal with…
Continue reading →The corpus obtained when buying “low” or when the Nifty is below its 200 day moving average (dma) is compared with the corpus from buying “high” (nifty above 200 dma). Apologies for yet another post on this subject, but I had to satisfy my curiosity. Kindly bear with me. Before we begin a clarification on nomenclature. As we…
Continue reading →The previous two studies on buying “low” vs. buying “systematically” pointed to the surprising regularity with which systematic investing does better (or at least as well as – good enough). In response to this, many suggested that in order to ensure buying “low” wins, I should ensure the cash that is put away waiting for…
Continue reading →In the second part of the buying “low” vs buying “high” study, I consider return differences for identical investment amounts. And guess what? The results are most surprising! For those who have not read the first part, I request that you head over to Equity: Buying “High” vs Buying “Low” and then come back. Some definitions: 1 Buying…
Continue reading →Suppose you invested in a stock market index only when it was “high” and compared the return obtained with that from an investment made only when the index was “low”, how much do you think the returns would vary? How would these returns compare with an investment made regardless of index levels? Let us find out. In…
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