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A Tale of Two Friends

Estimated reading time: 2 minutes 36 seconds

Sensex fell by 410 points on Friday, March 23rd, 2018 - a more than five-month low according to one news headline. Since Jan 29, 2018, when the Sensex (36,283) and Nifty (11,130) indices touched their highest level ever, the Indian market has corrected by 10%. Besides several domestic reasons - BJP loss in UP bypoll elections, TDP pulling out of the NDA combine, Rs.11,000 crore fraud in the Indian banking sector, LTCG tax etc. - being attributed to the market fall, fears of global trade war due to US import tariffs on China and rising interest yields in the US have also had an adverse impact on the market. See below for two relevant headlines on this.

A horror week for the Dow has investors begging for Trump respite

World's richest lose $436 billion as 2018's stock rout deepens

A pertinent question is what do the investors do now in such a scenario when investment portfolios have taken a dip and, in some cases, a large beating. I have captured two graphs of Nifty performance to illustrate the difference between the long-term view and the short-term view. The first graph is for the 16-year period 14 Jan 2002-23 Mar 2018 and the second graph is for the last 3-month period Dec 23, 2017 - Mar 23, 2018. 2008 market crash of 60% from its peak looks like a blip when you see the first graph whereas the 10% correction in the last two months from the second graph seems like a big deal.



There is some interesting data on if you missed the 40 best trading days in the last 20 years, how your returns will be affected. Oh, you would have moved from 12.18% to negative 0.04%.

In one of my earlier messages, I had mentioned about the STP strategy that Mitraz is following for our clients. This strategy is simulated Systematic Investment Plan (SIP) and does rupee cost averaging. How this strategy is fruitful, I want to relate to the investment discipline through a tale of two friends. Suresh started investing Rs.10,000 every month on 1 Jan 2006 and developed cold feet when markets fell in 2008. He stopped investing at the end of 31 Dec 2008 and sat on the sidelines for 4 years before getting the confidence to invest in the market again on 1 Jan 2013. Suresh started investing Rs.30,000 every month to catch up with the lost opportunity in the last 4 years. In the meantime, Suresh's friend Sushma started investing Rs.10,000 at the same time as Suresh but did not stop when the markets fell in 2008. She continued the same investment every month for 12 years without worrying about the market volatility.

Now, see below for the actual results of Suresh and Sushma investments over a period of 12 years.

While Suresh invested a total amount of Rs.21.6 lakhs and reaped an absolute gain of Rs.6.1 lakhs, Sushma invested only Rs.14.4 lakhs and reaped an absolute gain of Rs.14 lakhs. Regularly investing and staying invested over a long-term period is more beneficial to portfolios than attempting to time the market.

Please take the recent market volatility in your stride like Sushma did and keep the investment discipline.

The writer is the Managing Director of Mitraz Financial Services Pvt. Ltd and can be contacted at anup.bansal@mitrazonline.com

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Disclaimer - Mitraz is NOT a Loan Provider.

It is a Wealth Management & Advisory Firm.