{"id":18,"date":"2015-09-30T03:42:04","date_gmt":"2015-09-30T03:42:04","guid":{"rendered":"https:\/\/kuverablog.wordpress.com\/?p=13"},"modified":"2019-11-22T03:44:44","modified_gmt":"2019-11-22T03:44:44","slug":"002-stocks-for-the-long-run","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/002-stocks-for-the-long-run\/","title":{"rendered":"Equity Mutual Funds for the long run"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_40 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" area-label=\"ez-toc-toggle-icon-1\"><label for=\"item-69d67f07ccb67\" aria-label=\"Table of Content\"><span style=\"display: flex;align-items: center;width: 35px;height: 30px;justify-content: center;direction:ltr;\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/label><input  type=\"checkbox\" id=\"item-69d67f07ccb67\"><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kuvera.in\/blog\/002-stocks-for-the-long-run\/#Equity_market_is_the_best_investment_to_hold_if_you_are_a_long_term_investor\" title=\"Equity market is the best investment to hold if you are a long term investor.\">Equity market is the best investment to hold if you are a long term investor.<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kuvera.in\/blog\/002-stocks-for-the-long-run\/#Lets_look_at_overlapping_periods_first\" title=\"Let\u2019s look at overlapping periods first:\">Let\u2019s look at overlapping periods first:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/kuvera.in\/blog\/002-stocks-for-the-long-run\/#What_about_non-overlapping_returns\" title=\"What about non-overlapping returns?\">What about non-overlapping returns?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/kuvera.in\/blog\/002-stocks-for-the-long-run\/#Its_all_good_in_theory_but_what_does_it_mean_in_practice\" title=\"It\u2019s all good in theory, but what does it mean in practice:\">It\u2019s all good in theory, but what does it mean in practice:<\/a><\/li><\/ul><\/nav><\/div>\n<h4><span class=\"ez-toc-section\" id=\"Equity_market_is_the_best_investment_to_hold_if_you_are_a_long_term_investor\"><\/span>Equity market is the best investment to hold if you are a long term investor.<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p><em>Over the short term equity mutual funds can be volatile driven by the whims and fancies of current affairs, but the disciplined investor who holds through all the noise is rewarded by some of the highest returns of all asset classes. Add the ease with which equity mutual funds can be bought and sold, either directly or through mutual funds, it is a no brainer that investors should hold them for the long run. <\/em><\/p>\n<p>Ram and Shyam are having the same discussion while out for dinner.<\/p>\n<p>Ram: \u00a0I recently read somewhere that over a longer holding period stocks are not as risky as they are over short holding periods.<\/p>\n<p>Shyam: In Indian markets?<\/p>\n<p>Ram: The study was for the US markets but no reason it wouldn\u2019t apply to the Indian market.<\/p>\n<p>Shyam: Ah yeah that works in the US. The Indian markets are not the same. They are more risky and probably rigged. I wouldn\u2019t trust my money in the Indian market, I am happy with my saving and fixed deposits.<\/p>\n<p>Ram calls his friend at Kuvera &#8211; \u201cCan you help me figure this out?\u201d<\/p>\n<p>Of course we will, it is after all our life\u2019s goal.<\/p>\n<p>So, we dig into the data. Is Shyam right that Indian markets are very different from US markets, or do stocks become a safer bet as your investment horizon increases?<\/p>\n<p>We look at NIFTY data going back to Aug 1990, so a full 25 years of data. We look at 1yr, 3yr and 5yr holding periods. We also look at the data in two ways \u2013 overlapping periods and non-overlapping periods.<\/p>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Lets_look_at_overlapping_periods_first\"><\/span>Let\u2019s look at overlapping periods first:<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<table style=\"height: 272px;\" width=\"500\">\n<tbody>\n<tr>\n<td style=\"text-align: center;\" width=\"64\"><\/td>\n<td width=\"64\">1 YR<\/td>\n<td width=\"64\">3 YR<\/td>\n<td width=\"64\">5 YR<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">#<\/td>\n<td width=\"64\">289<\/td>\n<td width=\"64\">265<\/td>\n<td width=\"64\">241<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">Up<\/td>\n<td width=\"64\">193<\/td>\n<td width=\"64\">216<\/td>\n<td width=\"64\">218<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">% Win<\/td>\n<td width=\"64\">67%<\/td>\n<td width=\"64\">82%<\/td>\n<td width=\"64\">90%<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">Min<\/td>\n<td width=\"64\">-74%<\/td>\n<td width=\"64\">-45%<\/td>\n<td width=\"64\">-32%<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">Max<\/td>\n<td width=\"64\">124%<\/td>\n<td width=\"64\">138%<\/td>\n<td width=\"64\">182%<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">Average<\/td>\n<td width=\"64\">13%<\/td>\n<td width=\"64\">33%<\/td>\n<td width=\"64\">53%<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">Median<\/td>\n<td width=\"64\">13%<\/td>\n<td width=\"64\">24%<\/td>\n<td width=\"64\">45%<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">Std Dev<\/td>\n<td width=\"64\">30%<\/td>\n<td width=\"64\">23%<\/td>\n<td width=\"64\">21%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p>Over the past 25 years, we have had 289 overlapping 1yr periods. How is it possible you ask? Simple, Jan-2014 to Feb-2014 is a 1yr period and so is Feb-2014 to Feb-2015. Of these 289 1yr periods, 193 had a positive return \u2013 a win percentage of 67%.\u00a0 Not bad you say, but notice in one of these periods you lost 74% of your investment (that must have hurt!). Also, notice in one of these periods you made 124% from your investment (that must have been amazing).<\/p>\n<p>You can see where this is going though. The win percentage for 3yr is 82%, while it is 90% for overlapping 5yr period. Of course, it is a no brainer that equity mutual funds are a much safer bet over longer holding periods.<\/p>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"What_about_non-overlapping_returns\"><\/span>What about non-overlapping returns?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<table style=\"height: 273px;\" width=\"500\">\n<tbody>\n<tr>\n<td width=\"64\"><\/td>\n<td width=\"64\">1 YR<\/td>\n<td width=\"64\">3 YR<\/td>\n<td width=\"64\">5 YR<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">#<\/td>\n<td width=\"64\">25<\/td>\n<td width=\"64\">8<\/td>\n<td width=\"64\">5<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">Up<\/td>\n<td width=\"64\">18<\/td>\n<td width=\"64\">7<\/td>\n<td width=\"64\">5<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">% Win<\/td>\n<td width=\"64\">72%<\/td>\n<td width=\"64\">88%<\/td>\n<td width=\"64\">100%<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">Min<\/td>\n<td width=\"64\">-27%<\/td>\n<td width=\"64\">-31%<\/td>\n<td width=\"64\">29%<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">Max<\/td>\n<td width=\"64\">59%<\/td>\n<td width=\"64\">88%<\/td>\n<td width=\"64\">105%<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">Average<\/td>\n<td width=\"64\">13%<\/td>\n<td width=\"64\">39%<\/td>\n<td width=\"64\">64%<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">Median<\/td>\n<td width=\"64\">9%<\/td>\n<td width=\"64\">37%<\/td>\n<td width=\"64\">55%<\/td>\n<\/tr>\n<tr>\n<td width=\"64\">Std Dev<\/td>\n<td width=\"64\">23%<\/td>\n<td width=\"64\">37%<\/td>\n<td width=\"64\">31%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p>The results are same, even a bit more dramatic. Of the past 5 non overlapping windows starting from Aug 1990 to Aug 2015, none have had a negative return. Of course we only have 5 data points here so we cannot infer much from this, but still the longer you can hold onto stocks the better you will do.<\/p>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Its_all_good_in_theory_but_what_does_it_mean_in_practice\"><\/span>It\u2019s all good in theory, but what does it mean in practice:<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<ol>\n<li>You should only invest money in the stock market that you are not going to need in the next 2+ years<\/li>\n<li>Don\u2019t get scared by conspiracy theorist like Shyam. Indian markets behave in-line with other global markets<\/li>\n<li>Financial TV and press create a sense of urgency by highlighting and magnifying every move of the stock market. Unless you are a full time day trader, stay put for the long term.<\/li>\n<\/ol>\n<p><a href=\"https:\/\/kuvera.in\/\" target=\"_blank\" rel=\"noopener noreferrer\">Visit us<\/a> to invest in &#8220;Direct Plans&#8221; of Mutual Funds and save BIG on commissions!!!<\/p>\n<p>If you like this post, share the love below..<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Equity market is the best investment to hold if you are a long term investor. Over the short term equity markets can be volatile driven by the whims and fancies of current affairs, but the disciplined investor who holds through all the noise is rewarded by some of the highest returns of all asset classes. Add the ease with which stocks can be bought and sold, either directly or through mutual funds, it is a no brainer that investors should hold them for the long run. 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A graduate of IITD and Chicago Booth, he managed a long-short equity strategy for Morgan Stanley before starting Kuvera.","url":"https:\/\/kuvera.in\/blog\/author\/rustyhk123\/"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/kuvera.in\/blog\/wp-json\/wp\/v2\/posts\/18"}],"collection":[{"href":"https:\/\/kuvera.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kuvera.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kuvera.in\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/kuvera.in\/blog\/wp-json\/wp\/v2\/comments?post=18"}],"version-history":[{"count":9,"href":"https:\/\/kuvera.in\/blog\/wp-json\/wp\/v2\/posts\/18\/revisions"}],"predecessor-version":[{"id":3908,"href":"https:\/\/kuvera.in\/blog\/wp-json\/wp\/v2\/posts\/18\/revisions\/3908"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/kuvera.in\/blog\/wp-json\/wp\/v2\/media\/615"}],"wp:attachment":[{"href":"https:\/\/kuvera.in\/blog\/wp-json\/wp\/v2\/media?parent=18"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kuvera.in\/blog\/wp-json\/wp\/v2\/categories?post=18"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kuvera.in\/blog\/wp-json\/wp\/v2\/tags?post=18"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}