You would have recently seen an advertisement of Reliance Growth Fund multiplying money by 100 times over last 22 years. Reliance Growth is only an example. There are many good funds which have multiplied money between 40 to 100 times over last two decades.
Who would have got this kind of returns? It’s only someone who stayed the course without break, not worrying about corrections and bear markets, not feeling uneasy during roaring bull markets and not hopping in and out of the markets trying to time the tops and bottoms.
We’ve written many times in the past that investor returns and investment returns do not match due to the behaviour gap; trying to time the entry and exit and chasing performance by constant churning. I observe that not only investors but financial advisors too prone to this kind of behaviour. It’s only human to be so but the end result is that their clients do not get the benefit of staying the course.
In our case, over the years, we’ve shaped our behaviour and constantly keep nudging our clients towards right behaviour. Great wealth is built over long term only by completely shutting oneself from daily noise, in the form of various opinions and suggestions peddled by business channels and newspapers. I do watch business channels and read business papers; because they also provide certain useful stuff and is also entertaining. But I don’t let them affect my investment strategy. Since for many, it may be difficult not to be influenced by constant stream of ‘expert’ opinions, it is better to avoid them.
Corrections are way of life in the markets. Usually a fall of 10% or more is considered as correction. Markets normally go through at least one correction every year. If the fall is more than 20%, then it is called a bear market. I’ve read that less than one out of five corrections turn into bear market. Bear market usually happen at least once in 3 to 5 years. There are more positive years than negative years in the markets. But even in positive years, there would be intra year correction. Corrections and bear markets may or may not have reasons. Even when there are reasons, usually it is different one each time.
Though the reason for bear market may vary each time, economy and businesses always find a way to move on. That’s why bear markets are always followed by bull markets. This holds 100% true for countries like India which are in structural long term growth. Also bull markets can happen even when fundamentals are not good. This is because markets always keep trying to discount the future and not necessarily reflect the present.
The crux is that markets would continue to keep making new highs with periodical corrections and gut wrenching bear markets in between. We are optimistic that our economy and businesses would do very well over next one decade. What you need to do is to simply ignore all kind of noise and just stay the course. Do not get scared by bear markets or become uneasy by bull markets. Always remember the pendulum keeps swinging between optimism and pessimism and is rarely in equilibrium. This is the way to wealth.
Happy Investing !