“Its not supposed to be easy. Anyone who finds it easy is stupid!”
– Charlie Munger, Vice Chairman, Berkshire Hathaway
You might recall that in our January 2017 Newsletter titled 'Making Sense out of Nothing', we had argued that two years of almost zero returns (Sensex declined 6% in CY15 and grew 2% in CY16) is more of a passing phase and should not lead to a conclusion that markets do not have a good return potential going forward.
Even with this poor return back-drop, we had said that there is a good probability of the markets bouncing back. This is what we had said back then based on returns analysis for last thirty years:
To conclude, these are exceptional times and require investors to bring forth the most important but elusive quality: patience.
So, what is the probability of 25%+ returns in the year 2017? If history is any indicator, it is 43% :)
With the Sensex already rallying a good 15%+ in last six months, returns expectations of investors have got further emboldened. However, based on our 30 year analysis, the probability of market giving a blockbuster 40%+ return is only 27%. So, we would not be surprised if markets do take a breather during the next six months...
Turning focus on the Inertia portfolio performance, the portfolio is up 15%, almost in line with the 16% returns for Sensex. As we have communicated in the past as well, given our higher quality focus, we do expect the relative portfolio returns to moderate during euphoric times but remain relatively steadfast during the market downturns.
We believe that relative returns are best judged across a market cycle of 3-5 years which includes upturns as well as downturns. With Inertia portfolio up 79% in last four years vs 59% returns given by Sensex, we are confident that we will continue to outperform over the medium-to-long term, thus contributing to superior wealth creation for our clients.
Having said that, we continue to look for new ideas for the portfolio and would be implementing the changes, as required.
You see, whether the markets are dull or buoyant, its not supposed to be easy :)