Why investors do not make Good Returns?

It is an accepted fact that equity as an asset class is an excellent vehicle to create wealth over long term. Pink papers sing paeans about how the Rs. 10,000 invested in Wipro in 1990 would be worth Rs.455 odd crores. The list goes on for other shares. The same holds true for mutual funds.

Consider the figures set out in the table below:-

Scheme	Inception date	Value of Rs. 10,000(as on 30/11/2012)invested
		at  inception	on 03/01/2000
DSP BR Top 100Equity Fund	03/10/2003	1, 14,630 (28.49%)	NA
DSPBR Equity Fund(*)	29/04/1997	2, 24,153 (22.06%)	68,577    (16.07%)
HDFC Equity Fund	01/01/1995	2, 76,571 (20.56%)	1, 11,655 (21.00%)
HDFC Top 200 Fund	11/10/1996	2, 61,295 (22.66%)	80,913     (18.00%)
Reliance Growth Fund	08/10/1995	4, 92,000 (25.75%)	1, 12,005 (21.00%)

(*) Dividend Reinvestment option

However, the question is: - If equity is so rewarding, then why do ordinary investors do not make the kind of money as referred to above? You will hardly come across anybody who has realized/generated this kind of wealth by just being a passive investor! Rather it is an irony that we have come across far more people who have managed to either lose money or gain very little while investing in equity. Why is this so? If equity investing is such a wonderful thing, why aren't the streets full of ordinary investors singing virtues of the stock market?

We believe all or a combination of below mentioned facts that could be responsible for investors missing the wealth creation bus:-

• Investments are supposed to be liquidated at a point in time

Investors believe or are made to believe by their advisers/agents that since equities are volatile, they need to be liquidated to protect the value of investments. Intermittent crashes only tend to prove the point. However, the fact that markets will and recover after the crash is overlooked by the investors. The fact that in equity markets you make money not despite the crashes but because of the crashes—is usually missed by the investors. That an existing investment is liquidated only in under following circumstances:-

1. Your life’s goal has matured for payment.

2.Availability of an alternative investment which can yield more than the present one.

3.  In an emergency.

(Click to read:- Virtues of Long Term")

•  Failure to see the big picture

Investors simply fail to realize that if the economy is growing, equity—being slaves of performance, prices will ultimately catch up with the underlying fundamentals.

Over the last 30 years or so the Indian economy grew by 6.20% per year. This is the real growth rate. If we add inflation to this (averaging 7% over this period), the nominal growth rate was about 13%. This growth has come in spite of the famines, wars, assassinations, bankruptcy of our economy ET all. Is there anything to suggest that the next 30 years will be different from the last 30 years?(Click to read "Fear, Greed & Panic)

• Too much news flow/daily nav

Do we track the price of the property we have invested in on a daily basis? Or for that matter, do we follow the interest rates for the FD we made? “Yeh to long term ke liye hai” is our normal reply for other investments. However, when it comes to equities, we follow day to day price/nav movement? Thanks to the regular bombardment of price sensitive information on business channels or pink papers (whose primary objective ironically is creating informed investors).

•  Lack of faith

Our market it is said is driven by FII money. We Indians have less faith in our own economy than FIIs. There’s been positive funds flow since FIIs have been allowed to invest in India since early nineties. We have had net outflows of FIIs money only on 2 occasions (2008 and 2011). Moreover, is it not strange that FIIs shareholding in India’s top 75 companies touched an all-time high of 21.60% as of 31/10/2012? Would this have been possible if we had not performed as a promising economy? All these years, anything that could have gone wrong with the economy has occurred viz; droughts, floods, wars, scam ET all. Despite these negative events, we have grown by roughly 15% p.a. over last 30 odd years. Sadly, FIIs have realized this but not us.

•  Absence of goals

Investors usually make investments without any specific goals. It’s more like starting on a journey without a specific destination. We at AIMS have always advocated goal based investing. This gives a sense of purpose and hence longevity of investments.