Life is fundamentally about probabilities, and whether we acknowledge it or not, those probabilities are deeply rooted in statistics.
The world of investing mirrors life in this way, full of uncertainties where patterns emerge, only to shift just when you think you've mastered them. You might spot a trend, ride it successfully for a while, but randomness can fool you, tossing all your calculated odds out the window.
Consider traditional long-term investing.
Everyone's on the hunt for the next multibagger stock or the hottest theme.
Suppose you nail it, you identify a winner early. But what are the chances you'll hold on through the entire cycle to capture that 10x, 20x, or even 50x return? And even if you do, what's the likelihood you can repeat that success consistently? Investing isn't just about buying and selling; it's about redeploying capital wisely. This is why active fund management is notoriously tough.
Get your style right, deliver outsized returns, and suddenly investors flood in with more money. Now, size becomes your enemy, making it harder to maneuver nimbly.
Shift to trading, and the odds stack even higher against you. Statistics show less than 8% of traders make money consistently, yet millions worldwide pour over charts, convinced they can beat the market. But beating the market grows tougher daily, fuelled by endless greed. Probabilities dominate here, often not in your favor.
This brings us back to a core question: What's a better strategy—owning just 2 stocks or diversifying into 20? Diversification with 20 stocks can slash your risk by 90%. So why go it alone when professionals via ETFs or mutual funds can handle it for you? Yet, here's the catch: when massive capital pools chase the same assets, the potential for outsized returns diminishes over time.
Here's a contrarian take: Maybe you don't need to chase top-quartile returns obsessively. If the world fixates on 20%+ CAGR, perhaps a consistent 14% CAGR solves your goals just fine, steady, reliable growth without the high-wire act.
In stock picking, success isn't about nailing two multi-baggers; it's about maintaining a high average score, a positive hit rate, and ensuring winners outweigh losers by a wide margin.
I'll leave you with a thought experiment from cricket to illustrate how perception can deceive. Who had the better batting average in T20 internationals: Virender Sehwag, Sachin Tendulkar, or Rahul Dravid?
Your gut might scream Sehwag, the aggressive opener known for explosive starts. But the data reveals Dravid tops the list. Perception and reality are often worlds apart.
In investing and life, embrace probabilities, but don't get fooled by randomness or fleeting patterns. Diversify wisely, aim for sustainable returns, and always question your assumptions. After all, the game is won not by flashy plays, but by consistent, data-backed decisions.
Webinar Announcement - Real Estate Value Chain
Well, today I want to briefly talk about the listed Real Estate developers.
A lot of times, people find it hard to value these companies.
Revenue Recognition principles are often different, launches can be delayed and collections could get stretched.
Plus, in the last cycle when everything was going well, suddenly everything crashed and it took almost a good part of 10-12 years for the players to recover.
You might ask this?
How is it different this time.
Here’s a sneak peek from this month’s webinar:
Well diversified beyond a core geography
Along with Residential, developers now have annuity commercial assets and hotels
Leverage is at an all time low at the sector level, individual companies have become even more leaner
We discussed about Housing Finance companies yesterday, today it is developers - we will try and cover white goods tomorrow.
Still on the fence whether this webinar is for you?
Do let me know what questions come to mind.