The folly
The pursuit of money takes people anywhere and makes them do anything. That's why they ignore what is more important in their life and go for what seems to be more important. They are part of that rat race, trying to outdo others, i.e. make more than others. Invitation to stress!
In particular, let's take the investment business (investment banking, portfolio management and security analysis). The analysts are engrossed in the game of investment analysis with the sole aim of beating the market and others in the market. Do they succeed? If we go by what history tells us, in the majority of cases, it's a no. But that has not reduced any stress for them.
Even those who are not in that business (the rest of the crowd) want to participate in the game. They hear stories on television where the so-called experts yell out direction of the market, target prices, stop losses and recommendations. They also hear stories from friends and relatives at the week-end parties. The temptation is too much; emotional control is too little. Unfortunately, the end result is not worth anybody's time and money.
The proof
Why get into all of this when you can make decent returns over a period of time without stress? All that is required is: discipline and patience; neither analysis nor too much thinking.
Here' is the proof:
Just look at the way Sensex has moved upwards over that long period. Over 20-plus-year period the market has given a return of close to 15% p.a. Is that bad? Try plugging that rate on your worksheet and see what compounding does; then try a higher rate and see the result. Consistent super-normal returns are only on paper; it is very difficult to maintain those rates over the long period.
If we take 10-year periods, for 31Dec1989-99, the market returned about 20% p.a.; for 1999-2009, it was 13% p.a; and for 2003-2013 it has been 13% p.a. again. These are the periods selected with hindsight.
Let's look at the bad days: For 1999-2003, the market return was 4% p.a. Remember that dot.com boom and then that bust; the folly was to buy at 31Dec1999 prices. Nevertheless, there was enough time to rectify that mistake; by just staying in the game. See what patience can do for you. But if you tried to go in and out, you were actually bowled out.
Next, for 2007-13 the market was very weak (negative return of 1.4% p.a.). Sub-prime crisis, global meltdown, and local scams, infrastructure and energy issues, too many promises made and then broken by the government. Even here there were indicators screaming market was expensive if you were a little attentive: 27.6 P/E and 6.7 book which was the highest multiple for the book ever. Yet if you bought at 20000-plus at 31Dec2007, you will have to wait. Conversely, if you had bought at 31Dec2008, to date return would be about 17% p.a.
The growth
Indian GDP was less than $500 billion for too long; it has come to about $2 trillion now. Compare this to, say, China's $7 trillion. We have a long way to go; growth has to come considering our human capital. So if someone says due to the base effect our markets may not deliver in future, don't respond; just smile in your mind.
The moral
You would have faced none of these problems if you bought only the index (not individual stocks) and your purchase was based on a systematic-investment-program. Here you would have averaged out in the long run.
The moral of the story is: spend your time and energy on something that interests you. At least you will look forward to doing it. Don't listen to any unsolicited advice; they are all noise to distract you. Invest consistently in a broader market index (not sectoral index) over a very long period of time. In the meantime, enjoy your favorite, whatever that is. Life is good!
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