When a decade is a short time in the market
asset markets.
When we talk about various asset classes, we often mention expected long term returns, and sometimes in the passing, we also talk about the volatility of short term returns. But have you ever thought about what long term really means?
Unlock Leadership Excellence with a Range of CXO Courses
Offering CollegeCourseWebsiteIndian School of BusinessISB Chief Technology OfficerVisitIIM LucknowChief Executive Officer ProgrammeVisitIndian School of BusinessISB Chief Digital OfficerVisitSometimes we have vague notions like 5 years or 7 years is what long-term means. The question is: what does the data say?
Think Indian equity markets compound at 15-16% per annum?
You're right, of course: that HAS been the SENSEX return over 40+ years.
Nevertheless, what you may not know is these vary hugely not just year to year but over long periods of time.
Compounded annual returns each DECADE, starting 1980, have been 21.6%, 14.2%, 17.8% and 8.8% compounded. That means that Rs.100 invested at the beginning of 1980 became 700 in 10 years, whereas the same Rs. 100 invested in 2010 became only 230 rupees in the last decade. The difference can be as stark as that!
Rakesh Jhunjhunwala said, “Not every year I make money. I make money in spurts, like 1989-92, 2003-07, 2009-11. In 1994-99, I wouldn't have made any trading income.” (from the book ‘The Big Bull of Dalal Street’)
Equity returns can be that very lumpy!
The Sensex gave ZERO returns from 1994 to 2003 — a period of nine years. But then went up more than 6 times in
