The Power of Long-Term Investing and Handling Volatility
Peter Lynch, one of the greatest fund managers of all time, managed the Magellan Fund from 1977 to 1990 and achieved a staggering 29% annual growth rate. A $10,000 investment in his fund turned into $260,000 in just 13 years. These numbers are beyond impressive and cemented his reputation as an investing legend. However, despite this incredible success, the fund experienced multiple deep drawdowns.
Volatility Is a Part of Investing
During those 13 years, the Magellan Fund dropped by 10% a total of 15 times. It had six declines of at least 15%, four times it fell by 20%, and once it even plunged 35%. That steep drop likely happened during the 1987 market crash. Another interesting fact is that more than half the time, the fund was below its recent highs. This means that even the most successful investments go through painful periods of volatility. Investors who stayed patient and trusted the process reaped the rewards in the long run.
The Market Moves in Steps
One of the biggest lessons from this example is that markets don’t move in a straight line. The market goes up, corrects a little, moves up again, and then dips before the next rally. This is the natural rhythm of investing. Many investors panic during drawdowns, but history shows that downturns are often followed by new highs. If an investor accepts this as part of the process, they will be less likely to react emotionally to market movements.
Putting Losses in Perspective
A recent conversation with an investor highlighted how perspective matters. The investor was worried after losing ₹30 lakhs in the market. When asked about his total portfolio, he revealed that it was over ₹3 crores. That meant his loss was just 10%, which is a very normal fluctuation in the market. In fact, in tougher market conditions, many portfolios decline by 30-40%. Understanding that losses are just a part of investing helps in staying focused on the bigger picture.
The Key to Long-Term Success
Handling volatility is one of the most important skills for long-term investors. The biggest mistake people make is expecting their portfolio to always be at an all-time high. Instead of fearing drawdowns, investors should accept them as part of the journey. The key is to be invested in strong stocks or strategies that have the ability to recover and grow over time. If history has taught us anything, it is that markets reward those who stay patient and disciplined.
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