These are 4 Common Indian Stock Market Myths you should definitely know about.
Myth #1 -There is absolutely no doubt that Warren Buffet is one of the best investors the world has ever seen but there is a common myth that he buys stocks and holds it forever as he himself once said that his favorite holding period is forever. As per Research done by John Hughes (Prof at University of California) of his holdings from 1980-2006 (Twenty six years) he found that the average holding period for Warren Buffet was only 1 year, with approximately ONLY 20% of stocks held for more than two years. About approximately 30% of stocks were sold within six months of purchase.
A lot of Investors know that Warren Buffett owns Shares of Coca-Cola but only a few Investors know that the Stock price of Coke was 43$ in 1998 and the Stock price is Same at 43$ today. (20 years later).
Conclusion of Myth #1- Warren Buffet only holds 20% of Stocks for more than 2 years and not all good companies are good stocks.
Myth #2 – Indian Equity is the Best Asset Class Ever- Nifty Started in 1994 and since then it has given a return of 10% CAGR which is 3% higher than the prevailing FD Rates of 7% but did you know that in 1995 the FD Rates of SBI was 13%. You could have easily beaten the Index by investing in a long Term Fixed Deposit. Secondly, you might have seen people comparing Gold and Sensex. When Nifty Started in 1994, the Sensex was 4400 and Gold was also 4400. Today Sensex is at 35000 whereas Gold is at 32000, not a lot of difference!
Conclusion Myth #2 – Diversified Asset Allocation decreases volatility of Returns though overall portfolio returns were not impacted much
Myth #3 – You probably might have received a Whatsapp forward that an investment of Rupees 10,000 Invested in Wipro in 1980 is worth 500 Crores today – Well have you ever received a message that an Investment of Rupees 10,000 in Wipro in year 2000 (18 years ago) is worth only Rupees 5,000 today? (-50%)
Conclusion Myth #3 – Market clearly Moves in Trends and Cycles hence we at Stallion Asset believe that Buy and rotate works better than Buy and Hold approach.
Myth #4- MutualFundSahiHai- It is True that Mutual funds have performed well and given 11% CAGR in last 10 years which is 3% better than the Index but did you know that the returns of Mutual Fund unit holders is just 4% CAGR in the last 10 years (Rough Calculation from AMFI Data till December 2016). According to Industry data, 43% of Retail Equity Mutual fund Investors changed their Scheme or sold their unit within 1 year whereas 62% sold mutual fund within 2 years. How much time you spend in a equity mutual fund is more important than “Kaunsa Mutual Fund”.
Conclusion – We don’t wish to undermine any asset Class but we want to highlight the reality of different asset classes. We at Stallion Asset believe that there is a lot of money to be made in the Indian Stock Market as we grow from an economy of 2.5 Trillion$ to 5 Trillion $ in the next 8 years but we need to select the right stocks. Indians will not double their use of sugar or tea in next 8 years, they would buy more Air Conditioners, more Mutual funds, More Cars etc.
Disclosure – Amit Jeswani & Family may or may not hold the stocks discussed. Please use this education purpose only and Stallion Asset won’t be responsible for data.
Stallion Asset is a SEBI Registered Equity Advisory Company with Niche in Catching long term Trends. Plans Start from 8,999
The above was written by Amit Jeswani, CFA, CMT (Founder of Stallionasset.com)