INSUBCONTINENT EXCLUSIVE:
record-winning speed over the distance of the marathon, he could have completed the marathon in a time of 1:07:22 (half the time of the
A marathon is an event not of super speed, but of sustainability and endurance over a very long distance
The two gentlemen are great athletes, but neither of them can be called superior to the other.
The fact that Usain Bolt runs faster does not
really mean he is a superior athlete compared with Eliud Kipchoge, notwithstanding the difference in speed or difference in distance
covered.
And, as we all know, the average speed (the measure of performance) comes down when the distance to be covered is longer and longer
So far, so good.
Now, let us superimpose the same thought on investing
All investing is done with some goal in mind
wedding, to fund retirement, or to meet financial obligations caused by some unforeseen event.
Every financial goal should have a different
asset class mix, and this mix should be consistent with the goal in mind
If one is investing to build a capital for his or her retirement, or some other long-term goal like that, what good does it do to
extrapolate a fantastic one-year return (earned in a wildly bull market) and expect that over 10 years Can we generate the same fantastic
compounded return Does this sound any better than the Bolt- Kipchoge example
At the same time, a negative return in one year (when the
market is bearish) should also not be extrapolated over long term, and we as investors should not come to any wrong conclusion that the
stock market would perennially be negative.
A good starting point is to establish what is a sustainable rate of return and build an
investment plan around that
It has roughly grown in the same proportion as the nominal GDP growth of the country.
Going forward, we have reasons to believe that the
nominal GDP growth over the next decade or so can be about 12-13 per cent per annum
These figures should temper our expectations about what sort of returns the overall stock market can deliver over time.
Better investing
skills, including choice of stronger and more efficient companies, and at prices that make sense, can deliver a better (but not a
spectacularly better) return compared with the broader market
A realistic return expectation from equities can help in not straying from our path too much.
It would also prevent us from trying to
