In this article, Atul explains why index investing killed his passion for investing. Atul has an MBA in finance and has worked in different financial and banking establishments over the last 15 years.
Over the last 12-13 years, my approach to investing has been pretty much the same. I was intensely passionate about it. I was interested in learning every stock-picking approach, mutual fund theme, and curated stock basket (smallcases). I was so sure that it was easy to beat the market.
I dabbled in trading and spent good money trading and FnO courses. I was neither super successful nor a big failure, but I kept at it, thankfully, with only a small capital.
I have spent hours trying to find “the method” of market timing. That is when I came to know of freefincal, which has a huge archive of timing backtests. Then I stumbled on their data on index funds. That is when it happened.
When I realised that sectoral funds, mid cap funds and small cap funds also struggle against the index (in addition to the usual suspect large cap funds), it felt like a life-changing moment.
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- Myth Busted: Active mid cap mutual fund managers can easily beat the index
- Why investing in small cap mutual funds does not make sense!
- Why it does not make sense to invest in thematic/sectoral mutual funds!
I cannot get around that no matter what I do, beating the market consistently is very hard, and even if I manage it, it is more due to luck than skill. I am no longer excited whenever I see a new tweet, article, or video about a new product.
The idea of passive or index investing has killed my passion for investing. I don’t regret it. I realised that my “passion” was unhealthy. It was sapping away my time, money and energy. I cannot move past the idea of passive investing. That is the holy grail of investing.
It is like I am in a maze and desperately trying to find my way out to beat the market and get higher returns. But at each turn, I hit a roadblock called passive investing! I used the freefincal investment portfolio tracker and compared all my mutual funds with Nifty 50 and found that over the last ten years, my portfolio has underperformed for significant periods!
I wrote to pattu saying I wanted to get rid of my stock portfolio and switch all my equity to index funds. He rightly pointed out that if I did that, it would be just another hasty move, and he wanted me to go slow.
So I have now started selling all my mid cap and small cap stocks and want to build a robust large cap portfolio as a source of dividend income. I have also started reducing my mutual fund portfolio from 14 funds to my target of 5. I have stopped trading and FnO. For the last three months, all my equity investments have been in UTI Nifty 50 index fund. It is a small portion, but it is a start.
Pattu also wanted me to align the portfolio with my long-term goals. My equity portfolio is now about 75% of my net worth. So I need to reduce it in the future. The last 15 years have been frantic and chaotic. I hope I can build wealth in the next 15 in a more structured and systematic way using index funds without worrying about beating the market. This is now my new passion 🙂