Bees Saal Baad

Twenty years is a long enough time frame to understand and validate processes and theories, but does that also mean that the next Twenty years will be similar in nature and stature to the 20 years past? We Technical Analysts believe that “History tends to repeat itself”. But even the strongest votary of such a idea will laugh if you ask him whether markets will provide returns of a similar nature as it has done in the past (especially when we are looking at years / decades).

In Yesterday’s Business Standard, Chandan Kishore Kant writes about how if you had invested Rs 1,000 per month as SIP for 20 years, these schemes (listed in the article) would have turned the Rs 2.4 lakh into Rs 55 lakh. And he is right in the sense that if you were able to identify these schemes when they originated and were able to predict that they will Survive, you may have ended up with gains of the nature that is usually associated with Real Estate investing.

But then again, these are the Top schemes from that period and doesn’t include funds whose returns has not been upto the mark, forget about those funds that have changed hands and now no longer sport its original name (and in many cases, its original criterion). Hindsight as they say is 20/20.

A new newsletter seller yesterday posted about the humongous gains made by some stocks in the Nifty 50 universe over the last 5 years. But how many were there in the Index 5 years ago goes unanswered precisely because many of the top gainers got included very recently.

Marketing in its purest form is selling ice to a Eskimo. Some use total lies, some half truths, some do use the real data but massage the same to make it seem way better than it really is. Either way, they want to close out the sale and are happy to tell what you want them to tell.

Being not Rich, I never thought I could watch the Berkshire Hathway Annual general meeting that now attracts fans from all around the world making it the world’s most attended annual general meeting of any company. But thanks to technology, I finally was able to watch Buffett and Munger live without moving out of my comfortable couch.

Berkshire in its annual report every year provides data on how their performance (Book Value) has been when compared to  S&P 500. Returns since Inception was way past what the S&P 500 (TRI) delivered. But then again, how many investors knew about Warren Buffett let alone invest in his company way back in the late 60’s and 70’s?

In the Annual General Meeting Q&A session, I heard many of their shareholders talk and unless I dozed off, I cannot remember too many a investor say he was invested pre-1998. Why 1998 you may ask and to answer that, I shall direct you to the following picture

Berkshire Hathway vs S&P 500 TRI

As you can see, despite everything, returns from owning BRK over the last 18 years has been as good as what could have been gained from owing S&P 500 itself. But that is only half the picture. Lets take a look at a larger picture, shall we?

As you can see, anyone who invested in 1998 seeing the past 18 year returns as the proof of the pudding will be left sorely disappointed.

I believe investors who look at fund returns of the previous 20 years and assume similar returns over the next twenty too may be in for a surprise. In the 1990’s, investing in stock markets, let alone in Mutual funds were a real unknown. But today, with growing knowledge and corpus, funds will find it tougher and tougher to keep beating the markets as they did in the bygone years.

Alpha has already been on a steady decline though its still well in the positive territory. But like in US where Mutual funds have not been able to match the Index returns, let alone beat them black and blue, so will be the case (if and that’s a big IF, Index is property constructed) in India as well.

Size is really the enemy of good returns. Buffett has never been able to repeat the performance he showed when he was doing his partnership’s, the first few years of Peter Lynch were way above awesome, same is the case with many well known hedge funds of today.

But picking the next big manager requires dollops of Luck not to mention ability for you to invest a sizable sum so that the returns are really worthwhile (compared to your overall networth).

As Technical Analysts, we trade based on our anticipation (based on history) of how the move unfolds much like the mutual fund investor. But where we differ is that when it’s not going according to our anticipation, we cut our losses and search for new pastures. Do you?