There are so many Questions with no answers to be dealt with. We keep reading so much contradictory stuff all around that it becomes really difficult to know what is true and what is not anymore! If one set of data says something is good, there is another set of data saying that it is not. No wonder people are confused. And when they are, they simply take the easy way out. Most of the time, the easy way is to do nothing. Or do the usually done thing. This does not mean that they are really doing it right but just that they don’t have anything else to do!
Lest that sounds too confusing, sample this. Everyone has complete faith in Gold. It has been currency since biblical times after all. So how come the Sensex returns over the past 30 years has beaten the pants off Gold? I remember a balance sheet of Century Textiles way back in the 80s which had a golden cover with a gold bar picture on it and the words “more than worth its weight in gold” inscribed on it! What the management was trying to convey was that Century (at that point of time a Rs100 paid up share) was worth more than gold.
And this at a time when gold was king and the Sensex was just recently introduced! It is of course another story that the same Century Textile fell from a princely 12500 to a lowly 25 (Rs10 paid up) and nothing much happened to either gold or the Sensex! In 2021, for e.g., gold return was zero percent and over the last decade gold had a CAGR of 5.25%. That tells us that stocks are the place to be even at the cost of gold – although not too many women may really agree. Does the fancy for gold ever go away? Never. Even in 2022, gold is still the second largest import item (after oil). Why don’t people look to invest in equities than gold? No answer.
So does it look like long term investing in Index stocks is the way to go? On paper it would certainly seem so. But in the last 30 years, the best period to be invested would have been the 80s. The run till the major market high of Sensex 4500 in 1992 was indeed a glorious period for buy and hold investing. But for those who would have got into the market around 1992 (which is really when the market expanded substantially), then one had almost no returns for the next 10 years!!
It was not until 2004 that the market posted some gains (I am not counting the tech boom year of 2000 as being significant). After that we had 3-4 great years when the market expanded again between 2003 and 2007. So which stats are right? If you are an old timer (80s man) then markets have been good to you. But if you have been a 90s man or a post 2007 man in the markets, then the markets really sucked. Big time! Would that make a case for market timing then? I don’t know. You tell me. Another question with no answer.
Over more recent times, the 10 year return has been @10% while the 5-year return has been around @14%. Mutual funds will sell you the returns that is most convenient for them. So they will tout whatever time period (2 year, 3 year, 5 year etc) that suits them. But then the tag line is always. ‘Mutual Funds are for the long term’, lest you come asking questions and start redeeming! Are they right in doing this? Who’s to say? A question with no answer.
But it seems to me that most of the people currently in the market are those who have entered it in the last 5-10 years. Throughout this decade, the CAGR has been around 14%. Not bad at all, one would say. But are people coming to the market to make 14%? I wager not. Everyone is looking at the big runaway stocks and dreaming of multi-baggers and they want that every stock they own should become one. They load up and then we have a year like 2020- return falls to 0% and this spoils the average.
But is anyone looking at that? Not really. Super recovery in 2021 made everyone pine for those multi baggers again as the index racked up a solid 71% return for the year. So the hopefuls are still around in 2022, waiting for the market to do its magic. Do we know whether this year or the next will produce similar returns like 2021? One more unanswered question.
Over the past five years, I have seen more people abandon valuation and embrace timing than at any point of time in the past 20. Does that say something about the state of the market? Are fundamentals dead? Is it time to search for a new model? Can technical be an answer? Or will it be done in by high frequency trading? Is option trading the way to go, as being followed by a very large segment of the traders? Is Cryptos the new thing and if so will Bitcoin recover to its glory? Will the new entrants to the markets (in 2020-21) stick around and make money like they did?
I really haven’t a clue. So many unanswered questions! These are probably just a few. Main point here is that in the market you will ALWAYS have questions that do not brook a ready answer. If we approach investing and trading from a mind-set of having all answers before acting, then it is better to find another field. Market thrives on uncertainty. And that is about the only constant in the market! Learn to live with it. Learn to deal with it. Learn to profit from it. That is the name of the game.