So sad we do not have a Dalbar (an US based research firm that compares returns of stock and bond markets with those of individual investors) research on Indian investor returns!

This study in the US has 2 startling facts:

Over the last 20 year period the Standard& Poor Index returned an annualized gain of 9.1% – which means SIP returns should be superior. The Individual Investor got a return of 3.8%.

The Bond Investor got a 1% yearly return vs. an annualized return of 6.9% of the Barclay’s Aggregate Bond Index.

(this is old data based on 2011 figures, but I guess if you change it to 2014 it would be somewhat similar)

Why do retail investors under-perform by such a HUGE MARGIN? Well many readers of this blog may have different views, but the retail investor, in general is a poor investor.

What are the normal mistakes? – Behavioral Investment experts have their reasons, the Media has its own reasons, and I have a combination of all of this!

1. Overconfidence: So many investors think it is easy to beat the index-it is not funny. And even when they have their OWN POOR TRACK RECORD to see, they insist that they know how to invest.

2. Amazingly stupid half investment lessons: – ‘If you invest in a good company, it will always make money in the long run’. Orkay, Nirlon, Mafatlal, Silverline,…are all companies which were once upon a time in the index. Now they are not. This is called survivor bias. Even today there are 5 companies which will surely not be there in 2024. Guaranteed.

‘My father made money in Infosys, so will I’ – replace it with ‘Nirlon’, ‘Orkay, ‘Patheja Forgings’ – and you will understand what I mean. History repeats itself, sure – we do not know how often, that is the problem. And we forget the MOST important lesson from history – ‘You cannot LEARN from history’.

3. I cannot see ahead, so I will look in the rear view mirror and drive: God bless the driver/investor – considering that we are driving around in a mountain.

4. Recency effect: ‘Market is going down’ – actually what they mean is ‘Market has gone down’ – now will it go up in the recent future? The true answer is I DO NOT KNOW. However retail investors will tell you ‘Market is going down…I think it will go to 21,000 on the Sensex…..what do you think Subra?’ If I keep quiet it gets reported as ‘Subra also kept silent…he must be in agreement’. Vow, actually I am not in agreement, I am wondering how people can make such statements, dude.

5. Herd Mentality: My brother in law just sold all his shares, and mutual funds and bought a flat….and the price has already gone up by 10%!! He tells me nothing will happen in equities for the next 3 years, SO I AM BUYING A FLAT. Oh! I forgot to add – he is a real estate broker.

6. Looking at the market everyday and getting confused. Listening to the experts and wondering who is an expert.

7. Running a 42km marathon like 420 races of 100 meters!

8. Fear – ‘My father lost Rs. 3 lakhs in Harshad Mehta scam’, ‘My brother lost Rs. 5 lakhs in Ketan Parekh scam’, ‘My uncle’s broker cheated him off Rs. 5 lakhs’…- all ‘fear indicators’ . Actually look hard enough.

The guy to be blamed is the same guy whose face you saw in the mirror this morning while shaving. Not Harshad Mehta, not SEBI, not the Prime Minister, not your wife, not your advisor…..just the bloody guy whose face…..LOL!!!

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  1. Thank You subra…That’s why I feel lay investor like me who shave everyday (In other words..See their faces in mirror

  2. Thank You subra…That’s why I feel lay investor like me who shave everyday (In other words..See my face in mirror Everyday :)…Should give my hard earned money to Naren,Prashant,Manish,Chirag,Keneth ,Sukumar and ENJOYMADI….If on a Bouncy English wickets Isshan,Bhuwaneshwar Kumar and Shami are not successful to create MAGIC…Can I as lay man Produce that Magic….Common Sense How DEAR (COSTLY) You are !

  3. ‘You cannot LEARN from history’

    I think you can LEARN from history, but you cannot EARN from history. Else the History teachers would be driving Ferraris 🙂

  4. Subra,

    This is most confusing post, is it biased based on current market high ? You want us to invest in lic which lost 8000cr to ntpc ?
    buy via hdfc ? Just read your own posts on how big players are manipulating investments etc. . . ?

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