How many of us put our portfolio in an excel sheet and calculate the year on year returns on the portfolio? My mother’s portfolio was the easiest to calculate over a long period of time – and the returns came to a nice 19% p.a. return from 1985. The calculation was simplified because there was not too much infusion of funds, and the dividends were obviously reinvested. This is just what I could have got from the Sensex without any fee paid to anybody. So when I talk about a Gillette bought at 70 and still being held at 5000, it is just mental math. Obviously if I bought it in 1988 Gillette has just given me a 16% p.a return – of course I am being cruel on Gillette by ignoring the dividend, and by including the dividend I might be improving the return to say 20% – not something sensational.

Having said all that let me tell you that 19% over a 29 year period, TAX FREE is an awesome retirement fund performance. However, it was made possible because that fund did not have to worry about fluctuation, withdrawals, worry about medical emergencies in a down market. It is not a typical portfolio – how many portfolio can be in auto pilot no withdrawal mode for such a long period?

Having said that it is time for you to read the 2 articles that I saw on alphaideas.com…read on…

http://dailyreckoning.com/are-investors-idiots/?curator=alphaideas&utm_source=alphaideas and

The Acid Test of your Stock Portfolio

 

  1. How many investors can pick a Gillete or an Asian Paints or an Infosys that can compound at 20% for 20+ years? And on top of that how many investors can bear a 50-60% drawdowns coming in a buy and hold strategy?So going auto pilot with a portfolio looks damn difficult. The best way might be to invest in the index- the index will automatically weed out out the non performers and add the new stocks.So a bad bank like PNB will out of your portfolio whereas a YES Bank or Kotak Bank will weightage.

  2. An average set of investors is a mix of both – idiot and over-confident , both. This idiosyncrasy varies from investor to investor and also for the same investors time to time. And this is principal reason for an average investor who earns an average to mediocre return.

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