We all talk about how the Indian economy may be facing its worst time in years – and in the same breath, how the future of the nation looks bright especially as we stare into a decade where the balance of power shifts towards emerging nations like ours – with its young populace, bottoming out economic cycle, the return of high spends by private sector and the resumption in the global trade cycle.
And then we return home to worry about our stock portfolios and how they are not doing well!
How do we then bring this opportunity – and the volatility – all together in a single multibagger investment that isnt impacted by markets? The answer may not be far!
THE MULTIBAGGER HUNT!
We often look to investing greats to learn from them how they multiplied money over years – but the table below shows how these returns may well be within your grasp!
Globally, the real-world returns these investors have generated over long periods of time is seen as nothing short of extraordinary.
- Warren Buffett: 19% CAGR over 50 years
- Seth Klarman: ~20% CAGR over 34 years
- Benjamin Graham: ~20% CAGR over 20 years
- Peter Lynch: 29% CAGR over 13 years
- Joel Greenblatt: 48% CAGR over 10 year
Compounding at 20% a year means doubling your wealth in under 4 years!
Superb right?
Well if this is what you are looking for (and want to be called the Buffet of the neighborhood!), all you need to do is read the next para seriously and do something about it!
THE 20% CAGR MYSTERY SOLVED!
The only facts about markets –
a) Market returns are not linear (Markets can fall 30% any year and rise by that much very easily),
b) returns are often bunched up together on specific days and weeks (if you missed the best 40 days out of the 8000 trading sessions since 1998, you missed almost the entire return from the Sensex)–
c) and there are specific regimes where individual companies will face episodes of dramatic growth or collapse and its very difficult for most to remain committed because greed or fear will sooner or later take over!
If these are the facts, and we also want to be called the next Buffet, how do we generate a 20% return over the next decade in our portfolio?
YOU ALWAYS KNEW THE ANSWER!
A simple SIP in BSE Sensex over any 10 year period generates returns equivalent to Buffets CAGR!
Did you know the average return on a 10 year SIP into Sensex, with any date of start from January 2004, is a staggering 21.10%!
You might have not made anything if you selected the worst 10 year period – but even then you didn’t lose any money. Remember we have seen it all during this period – and yet one made a good return.
Source: Invesco Mutual
Remember this investment didn’t require any fund manager, nor any commitment of time – all it required was faith and commitment!
SIPs- ONLY FOR NOVICES?!
One assumption we all make is that SIPs are for novices – not for the “”active investors” or “experts”. Well we beg to differ!
We believe India has a unique combination of factors –high urban consumer inflation , high volatility symbolic of emerging nations, high taxation and a big opportunity – which needs to be met with an instrument powerful enough to benefit from such factors – and SIPs are the best way to do that! It profits from volatility, it is tax free in nature where equities are concerned, its the only investment which virtually guarantees inflation beating returns and of course will make money if markets do very well!
So irrespective of how clever you may be at investing, do put aside a little money each month and you will know the difference in 20 years!
Yeah Yeah- BUT SIP NOW AT THESE LEVELS?
We have read enough articles to know that an SIP started on any “worst” day ever went on to register mind boggling returns. You may be wondering whether current levels are a level you wish to invest in?
A repeat of the data may not help. Instead we present the potential development of markets with visual charts to show how , irrespective of what the future holds, you will anyways not lose money! And if history repeats itself, you will stand to beat Buffet anyway!
Mind you, we have presented pessimistic scenarios only below – to ensure you understand how the investments are riskless in the worst possible case! (We have assumed 12 investments at various levels just to illustrate a point and the returns are in absolute terms)
Situation 1: Markets undergo a V Shaped correction and recovery and return to where they are!
What happened to returns: Markets went from 10,000 to a low of 7500 and returned to 10,000 yielding nothing to a lumpsum investment. But an SIP generated 12%!
Situation 2: Markets went nowhere but experienced turbulence in between
What happened to returns : Again the hapless lumpsum investor didn’t make anything but the SIP investor still made 7%
Situation 3: Like situation 2, markets went nowhere but the volatility was much higher than situation 2
What happened to returns : Since the volatility was higher than Situation 2, the investor made 33%. Lots of shares were bought when markets corrected sharply so generated profits when markets returned to their original levels!
Situation 4: Markets went through a long long correction for may periods but recovered sharply towards the end to end at the same levels.
What happened to returns: Out of the above 4 bad situations, this turned out to be the best! An 82% return over the period translates into a 6.1% return post tax after a decade! Higher than fixed deposit returns!
Whatever you think of how markets may do over the next 10 years, is it likely to be worse than situation 4?
If not, and you are willing to “believe”, start an SIP tomorrow! Donr worry about acting like a novice – remember the hare and tortoise story! And dont worry too much about which stocks or mutual funds – we can guide you of course but chances are you will anyways be better off with plain simple index investing!
Contact our relationship managers across the country or email us at wms@plindia.com to ask us to help you set up an SIP in stocks, indices or mutual funds tomorrow! Its that easy!