Lessons from Reliance: Staying with Winning Stocks
Reliance Industries has been a cornerstone of the Indian stock market, delivering a 17% CAGR over the last 30 years—a stellar long-term performance. Yet, a deeper dive into its historical chart highlights critical lessons for investors: good stocks don’t always perform consistently, and staying with winners can be more rewarding.
Reliance’s Performance: The Hidden Gaps
While the long-term returns of Reliance are impressive, its journey has been marked by prolonged periods of stagnation:
1995-1999: No returns for 4 years.
2001-2003: Flat performance during this phase.
2008-2017: Almost a decade of negligible returns.
These periods tested investors’ patience and confidence. While hindsight makes it easy to say “hold on,” living through these stretches, especially when other stocks are performing well, is far more challenging.
Recent Performance: The Case for Momentum
Reliance’s returns over the last three years (since April 2022) have been flat, delivering virtually zero growth while Nifty has risen by 38%. During this time:
33 stocks in Nifty have outperformed Reliance in 3-year returns.
40 stocks have outperformed it in 1-year returns.
47 stocks have beaten it in the last 6 months.
This raises a crucial question: Why stay invested in a non-performing stock when others are yielding better returns?
Why Good Stocks Can Lose Momentum
Several factors can cause even blue-chip stocks like Reliance to underperform:
Stagnant Market Leadership: Companies may lose their competitive edge or market share.
Technological Disruption: New technologies or competitors can challenge the status quo.
Promoter or Management Issues: Leadership transitions or strategic missteps can impact performance.
Sectoral Trends: Broader industry shifts can temporarily stall a stock’s growth.
Investing in momentum-driven strategies—staying with stocks that are currently performing—can help mitigate the emotional and financial challenges of holding onto laggards. Here’s why:
Confidence Boost: Holding winning stocks ensures your portfolio moves in tandem with market leaders, reducing the fear of missing out (FOMO).
Minimized Opportunity Cost: Shifting to performing stocks ensures your capital works efficiently.
Adaptability: Momentum strategies allow you to re-enter lagging stocks, like Reliance, when they regain their upward trajectory.
Building a Winning Strategy
Monitor Momentum: Regularly assess stock performance over 3-month, 6-month, and 1-year periods.
Stay Objective: Avoid emotional attachment to specific stocks. Focus on data and trends.
Professional Guidance: If managing a strategy feels overwhelming, consider professional fund managers or pre-designed strategies like smallcases.
Dynamic Allocation: Allocate capital dynamically to stocks with strong momentum, shifting as market conditions evolve.
WeekendInvesting launches – PortfolioMomentum Report
Momentum Score: See what percentage of your portfolio is in high vs. low momentum stocks, giving you a snapshot of its performance and health.
Weightage Skew: Discover if certain stocks are dominating your portfolio, affecting its performance and risk balance.
Why it matters
Weak momentum stocks can limit your gains, while high momentum stocks improve capital allocation, enhancing your chances of superior performance.
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