Between 1981 and 2020, the BSE Sensex produced an annualized return of 15.5% compounded, excluding dividends. 1 Lakh invested in the SENSEX on 1981 would be worth more than 3.15 Crores by 2020. Investing in Stocks is the simplest way to create sustainable wealth.

Despite high market returns, most investors failed to create wealth from Stocks!

This is due to the following reasons:

Reason 1: Behavioral Biases.

Multiple studies have revealed that there is a strong propensity for investors to buy near market highs and sell near market bottoms.

For example, the best performing equity fund from 2000 through 2010 in US (CGM Focus (CGMFX)) had an average annual return of 18.2%, according to Morningstar. During the same time, the fund’s typical shareholder lost 10%! Investors, motivated by greed and fear, poured $2.6 billion into the fund in 2007 when it was up over 80%. In 2008, when the fund was down 48%, investors redeemed over $750 million.

Human emotions negatively impact investment decisions. A disciplined, quantitative approach to investing can reduce the influence of biases.

Reason 2: Wrong or No strategies

More educated investors today and are trying to design portfolios based on value investing principles following Buffet-Munger-Graham. How do they fare?

If we go by hard data, value investing hasn’t worked in India for the past 10 years. Credible research further suggests, investing in small-cap stocks, does not work in India. And if you are considering to invest in high beta stocks, the story is even worse. None of these three popular strategies worked in the Indian markets in the past decade!

While market efficiency remains a myth, every market is different: Factors that worked well in the US, may not necessarily work in India. Knowledge of which factors work consistently in Indian markets is key, and the only way to figure that out is to back-test strategies over a sizable past data.

At ViniyogIndia.com, we just do that!