A fascinating infographic from Capitalmind highlights the annual performance of the stock market index from 1980 to 2024. Looking at the data, there are only a handful of years where the market saw a decline between 0 and -20%. There were three years where the drop was between -20% and -40%, and only one year where the market crashed between -40% and -60%.
Most Years Have Positive Returns
The majority of the years have shown positive returns, with a large number falling in the 0% to 20% range. Interestingly, there are also many instances where the market gained between 20% and 100% in a single year. This distribution is not a typical bell curve—it is heavily skewed toward the right, meaning that strong gains outweigh the losses over time.
Accepting Risk is Necessary for High Returns
The reason investors are able to achieve significant long-term returns is because they are willing to bear short-term risks. If one is not prepared to face the occasional downturn, it becomes difficult to benefit from the long-term upward trend of the market. This is a fundamental principle that every investor needs to internalize—temporary roadblocks are part of the journey, but over time, the market rewards those who stay invested.
The Role of Active Portfolio Management
For investors who rely on funds, portfolio managers, or structured strategies like AIFs, PMS, or smallcases, the key to long-term returns lies in continuous portfolio optimization. A good manager will periodically remove underperforming stocks and bring in new, stronger stocks. This process ensures that the portfolio remains dynamic and adaptive to market trends.
Why Index Investing Works and How It Can Be Improved
Index investing benefits from a similar mechanism, where every six months, the index committee removes weak stocks and replaces them with better-performing ones. This natural “momentum effect” of the index contributes to the positive long-term results. However, investors can further optimize their returns by following strategies that select only the strongest stocks from the index rather than blindly holding all stocks within it.
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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