The players and their fate
There are investors. Then there are speculators...traders and punters. And there are mutual funds. All of them trying the same thing. Beat it. Make it.
Investors have noble thoughts though. They want to protect their downside and aim to earn adequate return which is some points over the market return. Some do; some don't.
Speculators, well, want to do what they are good at..speculate. They win some and lose more, much more. Negative-sum game players. Their instincts never let them stop playing. They will play until they are gone. Needless to say, their net returns are poor. They always lag the market. Don't believe them when they say they do.
Institutions (mutual funds and the like) want to beat the market by some solid points. They hire managers with special skills; they talk the jargon; they use presentations; they want to be high profile. But overall, they remain good only at that, crunching numbers. Their result is mediocre. No, the majority is not able to beat the market.
They continue playing the same game
When the large majority cannot even equal the performance of the market itself, it is surprising that none of them think of doing something different. That is, work towards beating the market or at least equaling the market.
A new game: Beat it
Beating the market, though not impossible, requires different skill set. Not the jargon or the gibberish. It requires an acceptable investing framework and rational behavior. It appears simple, but in reality can test anyone.
Key requirements are treating investing as a business by itself (you are the business owner), and devoting sufficient time to learn about it: prepare the framework and develop the right behavior.
This is a lengthy process like any other business. As you go along, you will learn about various securities (businesses) and how to value them under different circumstances.
If you run this business of yours properly, you should be able to aim for market beating returns, that is, some points over market. And over the long run, these additional points should be able to make you rich enough.
Another game: Beat them
Well, if you don't have time and patience to start your own investing business, or you don't enjoy this process since you consider there are better things in life to have fun, it's not a big deal. You can still make money..in the long run. You will not beat the market but you will beat the majority of those players out there.
All that is required is discipline and patience. This game is called index investing which is investing in the market itself. You will get the same result as the market.
If the market goes up by 10% you will see 10% (almost) upside, and if it goes down by 5% you will see 5% downside too. In short, your performance will mirror the market performance.
With this you will beat a vast majority of those so-called investors (individuals and institutions) out there. What more do you need?
It works like this: You invest X amount each month (week, quarter, half-year or year will do) in a broad index fund (exchanged traded or managed) irrespective of the index value. You continue this process for sufficiently long period, say, 10, 20 or even 30 years. The result should be pretty good indeed if you work the math. The magic of compound interest is marvellous.
You should not skip investing; and should not track (worry about) the market in the entire period.
There are detractors to this kind of investing. They argue: Companies in the index change all the time; Index funds invest in only large-cap companies; Index funds have to invest in expensive stocks; As the index value goes up (that is, as market cap of the companies in the index goes up), the large base effect restricts profits.
Consider this: The Nifty value in Jan-1994 was 1083; now it is 5908; The Sensex value in Jan-1991 was 982; now it is 19444. Even at today's weak market conditions (high interest rate and low demand) the market performance has been at a compounded rate of over 10% pa.
There is far lower risk (and stress) in index investing since it goes for a long time. You see much volatility in the mean time, but over the long period the risk is virtually not there.
There is no reason why we cannot see market return of about 10-15% pa compounded over the next 10-20 year period.
This is certain if two things hold good: reasonable interest rates and higher corporate profits. India has virtually no choice in its policies. The reform policies may be delayed but they will have to come lest we will be in debt and danger. The potential for growth is there with so much to be done in infrastructure, energy, agriculture, manufacturing and services.
That points that index investing is, after all, not that bad. Do the math with your choice of monthly investment, number of years and a return of 10-15%, and check.
So for all those beach lovers or what have you, there is a choice to have fun in life, do the favourite day job and make money.
Wonder if those institutions are listening. If they aren't, you will be beating them at their favourite game in their field in the next 20 years.
Low risk, low stress, more fun and more money. Too good to be true, but it is true.
There are investors. Then there are speculators...traders and punters. And there are mutual funds. All of them trying the same thing. Beat it. Make it.
Investors have noble thoughts though. They want to protect their downside and aim to earn adequate return which is some points over the market return. Some do; some don't.
Speculators, well, want to do what they are good at..speculate. They win some and lose more, much more. Negative-sum game players. Their instincts never let them stop playing. They will play until they are gone. Needless to say, their net returns are poor. They always lag the market. Don't believe them when they say they do.
Institutions (mutual funds and the like) want to beat the market by some solid points. They hire managers with special skills; they talk the jargon; they use presentations; they want to be high profile. But overall, they remain good only at that, crunching numbers. Their result is mediocre. No, the majority is not able to beat the market.
They continue playing the same game
When the large majority cannot even equal the performance of the market itself, it is surprising that none of them think of doing something different. That is, work towards beating the market or at least equaling the market.
A new game: Beat it
Beating the market, though not impossible, requires different skill set. Not the jargon or the gibberish. It requires an acceptable investing framework and rational behavior. It appears simple, but in reality can test anyone.
Key requirements are treating investing as a business by itself (you are the business owner), and devoting sufficient time to learn about it: prepare the framework and develop the right behavior.
This is a lengthy process like any other business. As you go along, you will learn about various securities (businesses) and how to value them under different circumstances.
If you run this business of yours properly, you should be able to aim for market beating returns, that is, some points over market. And over the long run, these additional points should be able to make you rich enough.
Another game: Beat them
Well, if you don't have time and patience to start your own investing business, or you don't enjoy this process since you consider there are better things in life to have fun, it's not a big deal. You can still make money..in the long run. You will not beat the market but you will beat the majority of those players out there.
All that is required is discipline and patience. This game is called index investing which is investing in the market itself. You will get the same result as the market.
If the market goes up by 10% you will see 10% (almost) upside, and if it goes down by 5% you will see 5% downside too. In short, your performance will mirror the market performance.
With this you will beat a vast majority of those so-called investors (individuals and institutions) out there. What more do you need?
It works like this: You invest X amount each month (week, quarter, half-year or year will do) in a broad index fund (exchanged traded or managed) irrespective of the index value. You continue this process for sufficiently long period, say, 10, 20 or even 30 years. The result should be pretty good indeed if you work the math. The magic of compound interest is marvellous.
You should not skip investing; and should not track (worry about) the market in the entire period.
There are detractors to this kind of investing. They argue: Companies in the index change all the time; Index funds invest in only large-cap companies; Index funds have to invest in expensive stocks; As the index value goes up (that is, as market cap of the companies in the index goes up), the large base effect restricts profits.
Consider this: The Nifty value in Jan-1994 was 1083; now it is 5908; The Sensex value in Jan-1991 was 982; now it is 19444. Even at today's weak market conditions (high interest rate and low demand) the market performance has been at a compounded rate of over 10% pa.
There is far lower risk (and stress) in index investing since it goes for a long time. You see much volatility in the mean time, but over the long period the risk is virtually not there.
There is no reason why we cannot see market return of about 10-15% pa compounded over the next 10-20 year period.
This is certain if two things hold good: reasonable interest rates and higher corporate profits. India has virtually no choice in its policies. The reform policies may be delayed but they will have to come lest we will be in debt and danger. The potential for growth is there with so much to be done in infrastructure, energy, agriculture, manufacturing and services.
That points that index investing is, after all, not that bad. Do the math with your choice of monthly investment, number of years and a return of 10-15%, and check.
So for all those beach lovers or what have you, there is a choice to have fun in life, do the favourite day job and make money.
Wonder if those institutions are listening. If they aren't, you will be beating them at their favourite game in their field in the next 20 years.
Low risk, low stress, more fun and more money. Too good to be true, but it is true.
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