INERTIA WEALTH CREATORS

Anshul Khare +919881127924

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Sensex return: What to focus on? 25x in last 25 years or 5% loss in last 1 year?

January 2, 2016

 

Lets get it straight: At best CY15 was disappointing, if not a terrible year. With all hopes from new government and fall in inflation/interest rates, one would have looked for a party in the markets. Instead, what we got was a negative return of 5% for the Sensex. Inertia portfolio did better with a 0.4% loss. Hardly a solace for us or our investors!

So, what really happened? With this one data point, we can all start doubting the equity story. In the best times if returns didn’t come, what is the guarantee they will come in the future? If FD was the best asset class for CY15, why bother with all the volatility in the markets and in our blood pressures? Is it really worth it? We think it is absolutely worth it and let us explain to you why…

Think about it: Equities work as investments only because they are unpredictable! The investors gets rewarded with better returns only because they are willing to bear the volatility. So lets shed our emotions and embrace volatility. Easier said than done, isn’t it?

So let us expand our analysis a little bit (actually by 25x). And lets focus on what happened in the last 25 years to the Sensex. If one year analysis is worth anything, 25 year analysis should also be worth something…

In the last 25 years, Sensex is up ~25x from ~1050 levels in 1990 to the ~26,000 odd mark in 2015. Thats a solid 14% CAGR (its all tax free and does not include dividends!). Note that this period included all sort of uncertainties including gulf war in the nineties, weak coalition governments in India for most of the period, dot com bust in the early 2000s, global financial crisis of 2008 et all. If you recall, all these were major ‘WORLD IS COMING TO AN END’ events. Still the markets did fine over the 25 year period. Thats the real power of markets and productive assets like equities for you!

At Inertia, we invite you to participate in the exciting growth that awaits us over the next few decades. Good and bad years will come and go. Our job is to take them in our stride and keep moving. We must emphasise this is very important to create our own financial future and financial freedom. How to do that? Work on your equity allocation rather than worrying about market volatility. Still does not make sense to you? Call us and we will tell you exactly how 

Here’s wishing you an exciting and profitable 2016…

Happy Investing!

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