Eight investment truths hours of number crunching have taught me

Here are eight investment truths hours and hours of number crunching and data analysis have taught me. I have always believed that mathematics is the language of nature and that a truly open-minded analyst has a chance of appreciating the “truth” or even attaining nirvana!

1. There is no evidence that long term investing is guaranteed to work. Most equity investors have only hope and past performance to rely on when questioned about why they wish to invest for the long term.

Sadly there are no guarantees with life, marriage, parenting, career etc., and the same applies to investing. However, there is a reasonable chance that equity investing will beat inflation (not your expected return!). Therefore risk management is key!

See: Why should I invest in equity mutual funds when there is no guarantee of returns? And Equity may beat inflation, but that doesn’t mean you will!

2. No strategy will work all the time! Be it time in the market or timing the market, SIP, tactical asset allocation, stock investing, etc. Nothing will work all the time. One person’s experience cannot/should not motivate others to invest or not invest. This is also known as the sequence of returns risk.

• Tactical Asset Allocation Archive
• A risk in market timing that 122 years of backtesting failed to reveal!
• Myth Busted: Investing during market dips will result in more returns

If someone says they have a method that has always worked in the past, it just means that they have either not looked properly or the data is not long enough for cyclic behaviour to set in.

3 Everyone is waiting for that bumper stock market return, and therefore, everyone is timing the market (even those who do a SIP) just that the industry wants you to do the timing while being in the market and count notional gains/losses while they count real gains.

• Are you ready to climb the Sensex Staircase?! Updated versions are linked below.
• Do not stop or redeem your equity investments! Now is the best time to invest!

4 SIP is not systematic investing. SIP is an automated purchase of mf units on the same day of each month. Investing with a system is systematic investing, and this includes risk management. SIPs do not reduce investment risk. No matter how long you do a SIP, the performance will be poor if the market is down on the day of redemption or return calculation.

• What I learnt from a 13-year midcap mutual fund SIP
• A mutual fund SIP will not help reduce risk when the market falls!

5 Once you recognise that it is hard to beat the index, most things about investing seem fluff and unnecessary. However, it is merely a choice, and there are bigger things to worry about.

• Active Large Cap Mutual Funds vs Nifty 100 performance analysis
• Only 3 out of 28 mid cap MFs consistently beat Nifty Midcap 150!
• Why a SIP in Small Cap Mutual Funds is a waste of money and time
• The active vs passive debate is not of primary importance in portfolio management

6 You cannot expect a set return from any mutual fund or stock. We need to adapt if things do not go our way. 

• Do not expect returns from mutual fund SIPs! Do this instead!
• How to reduce risk in an investment portfolio

7 There is no optimum asset allocation, a mix of funds/stocks or strategy. There are thousands of ways to reach our financial goals. There is no way of knowing which will work and which will not work beforehand. We have to choose a path and change course if required.

8 Unwavering discipline is the only superpower needed to get rich. Not intelligence, smartness, or a lot of money but just discipline. Unwavering discipline.

I am much closer to investing nirvana today than before I started crunching numbers … with an open mind.