Investment and Investor Returns are NOT the same
One of the biggest misconceptions, let's break it down and decode it
In the world of investing, there is often a massive difference between Investment Returns and Investor Returns.
Allow me to break it down for you.
Often, we get carried away by reading headlines like - stock zoomed 5x in last 3 years, index moved 200% in last 6 years etc. and chances are, we had the stock or we were invested in the index.
The catch is, we reflect and see our returns are probably not commensurate with what the actual return of the stock is.
You see, the human bias always kicks in at varied time frames and almost at all occasions - making it almost impossible to say that investment and investor returns are the same.
At this point you must be thinking - What the hell am I talking about?
Let's say the Nifty 50 delivered a return of 13% in the last 1 year. There is a high chance that your portfolio (which more or less tracks the Nifty) delivers a return of 12%.
Great - in a particular year Nifty corrected 20% and your portfolio ended up delivering -15% returns - you got scared and pulled all your money out thinking of entering back at 'the right time'.
2 years later, you see the Nifty 50 has moved 40% and there is a high chance you are still sitting on cash trying to wait for the perfect time to enter back into the markets.
Now what is the conclusion of all this?
Nifty delivers 33% return over a 4 year time frame
Your expert decision making as delivered a return of -3% (-15%, if I add the impact of inflation of ~6% a year for sitting on cash)
So, what is the implication here?
Well, the first thing that any reasonable investor should do is cut the bias out. With access to internet and free advice floating all around the internet, people end up gambling their hard earned money by following half - baked advice from anywhere.
When the focus and energy should be concentrated on ensuring your income earning capacity and saving rate should go up, we end up trying to optimise for returns.
The process of investment decision making should either be delegated or automated and kept as simple as possible.
I still remember a time when all apps would come to you and tell you, do this do that, cut the middleman - save commissions! - that was as good as saying if you have a problem with your health, pop a Paracetamol tablet and you will be fine.
The advice is great - if only you want a 1% or 0.01% chance of ensuring your money decisions work for you.
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In conclusion, cut the bias, focus on yourself - the India growth story has just begun - we can only sit tight and see how this ride rushes - if we stay on the sidelines, maybe our next generation will have questions we are not going to have answers for!
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(I have been told that I need a better picture - Do I?)