Nifty 50 from 1,000 to 10,000: Lessons from the rocky road

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 scale from 6000 to 7000?” made in a thread that displayed Nifty 1000 point milestones.

First, let us look at every 1000 point milestone from 1000 to 10,000.
The Sensex staircase is clearly visible here. If you see an “infographic” that just states the date on which the index hit a + 1000 landmark, it can be quite misleading about the reward associated. As Ravikiran so succinctly pointed out, time matters!

Notice the long periods of non-movement and how even “small crashes” can pull back the Nifty by 1000 points. The big one, halved the Nifty from 6000 to 3000 in the space of a few months.

Next, let us look at how long it took for each 1000 point increase (ignoring pullbacks). The scale below is in log and the horizontal axis divides the vertical space into two – above 1Y for a 1000 point increase at the top and below 1Y at the bottom.

While the top picture tells you how fast you can lose money in the stock market, the bottom picture tells you

(1) how long you can go without earning anything

(2) and then suddenly the tide turns and you can get a 1000 point increase within months or weeks.

Amusing to see two 1000 point landmarks this year!

Don’t get swept away by euphoria. Sooner or later the party is going to end  and the house will come crashing down. What matters then would not be your returns, but how much will you still have for meeting your financial needs.

Instead of enjoying it while it lasts, a more mature stance would be to prepare for the storm (while you can): Simple Steps to De-risk Your Investment Portfolio.

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