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2 ‘things’ that affect your equity return the most in long term and surprisingly, are in your control!

As an investor in equity we expose ourselves to various media, to listen to and learn the ideas, the tools that talks about the past, present and probable future of the market.

But, that doesn’t seem to work enough, as we struggle to gain the equity return that we expect to earn from the market. So, what else we need to learn to get the kind of equity return the market has offered over time?

Equity Return depends on investment behaviour and mindset

2 things that can substantially change your earnings from the equity market for the better. And surprisingly, these 2 things are not truly a part of the technicalities of this field and are totally in your control. Things which are no less important or might well be more important than anything else related to the equity market when it comes to generating returns in long term.

So, what it is when we talk about equity return or about investing in the equity market as a whole?

The common notion is – “When the Country’s economy is growing, market is bound perform and the investors will definitely create wealth.”
But, this is not always the reality.

The first thing is that the equity market growth may not be in line with the country’s GDP growth.

If we look into the global scenario (the following data is around 3 years old but can be referred to for a fair idea of the actual situation around), only 4% of the stocks generated all of the wealth created globally and the balance 96% stocks could not even beat the risk-free rate. Also, if we consider India, only 14% companies could give 25% + returns over the past 20 years.

What does this indicate? This indicates that growth at macro level may not translate into equity market performance.

Second, it has been observed that, both globally and in India, investor returns in their equity portfolio is less than the returns generated by the equity market.

That means though the market (Nifty / Sensex say) might have generated a good return in a period but the investor could not generate the same return. (Same happens with mutual funds investments as well, which is one of the preferred way to invest in equity market)

What do you think is the reason?

  • This is due irrational investor behaviour in different market scenarios (Buying high, Selling low) and choosing the wrong stocks (following what majority of the people do – run behind shiny stocks instead of buying good companies)
  • This is also because of being impatient and immature.
  • This because of the fear that comes due to lack of understanding of the instrument.

This is where having the right investor mindset comes into play

So, what should one do to gain the kind of equity return they deserve as an investor?

Be a responsible Investor. To reap profit from the market and create wealth we should have the right mindset and invest responsibly. 

  • Start with a goal in mind,
  • be rational and
  • think long term.

Do you know anyone who does only intra-day trading and became ‘rich’? You would hardly find one. But you surely know people who are investors in the stock market and made it big.

At least to start with,

  • stop following market trends (avoid timing the market) and
  • stay invested following long term investment goals.

If possible,

  • get in touch with a responsible advisor. An advisor can guide you on a regular basis, educate you and prepares you for uncertainties.

Always Remember: 

It is your investment behaviour and mindset that creates Wealth for you and not the market. These are the prerequisite for everything we do – the need for having

  1. the right mindset and
  2. the right behaviour.

NOTE: This post is not an advice of any kind for investing in equity market. The intention is to share my experiences as an investor and an investment enthusiast that might be of help to my friends.

Suggested Read: This book by Benjamin Graham might be a good read for you as an investor. Find the book here.

Blog Post: Mutual funds or Stocks?

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