Last Updated on December 29, 2021
One year ago, on March 23rd 2020, the stock market stopped falling in fear of the global economy coming to a standstill due to the pandemic. From Feb 18th 2020 to March 23rd 2020, the Nifty fell by 36.5%. On March 23rd 2020 we saw the biggest intraday fall 0f 13.5%. The 10-year Nifty SIP Return fell to 2.3%, 14-year SIP Return fell to 5%. Even in May, my equity retirement portfolio XIRR was only 2.75% after 12 years! Here are some lessons from the episode.
1. “stay invested” is not wisdom. It is hindsight bias
On March 23rd 2020, no one could have predicted the Nifty will zoom by 94% in the next 12 months. So people who point to this growth and claim, “this is why you should stay invested” are afflicted with hindsight bias. In fact, we know that the fall ended on March 23rd 2020 only in hindsight.
Another “fact” in hindsight, while it happened it felt like 2008 all over again, but no it is not!
2. Waiting for recovery is leaving it to luck
The recovery could have taken years or even if there was a recovery, subsequent movement sideways for years. So “waiting” is simply leaving the fate of your hard-earned money to luck. Yes, some people should stay invested; some people should wait but only after evaluating if one can afford to do so.
A better plan to have a plan that can handle any kind of return sequences. Have a plan that involves not just systematic investing but also systematic risk management via a variable asset allocation plan. Start investing the right way with this free seminar: Basics of portfolio construction: A guide for beginners
3. There is no compounding in mutual funds or equity. Only confounding
Yes, the stock market moves up over the long term (so does gold) but that does not mean you will get “high returns”
See: Don’t get fooled: Mutual funds have no compounding benefit!
4. This too shall pass!
This was drawn in Dec 2020. I think it has passed!
5. Beware of CAGR/XIRR/Annualised returns! All of them are in hindsight!
When someone says they made 15% over the last year, we must stop and recognise that it is a point to point evaluation of growth in hindsight. The journey is almost always forgotten.
CAGR!
6. When the going is good, no one complains; When the going is bad …
Okay, this is with reference to the six closed debt mutual funds and not the stock market.
7. If you want the rainbow, you have to put up with the rain
8. If you say there is a “pattern”, there is!
When you read about self-similarity and fractals, you start seeing them everywhere! Also, see: Five Books That Will Redefine Your Understanding of Stock Markets
There are two ways to get to unpleasant truths. The direct route or regular route. No pun intended pic.twitter.com/qaNWJRPUQF
— M Pattabiraman (@pattufreefincal) March 23, 2021
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
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