Beyond the Hype: A Realistic Look at Index Investing
The Japanese stock market chart is etched in investors’ minds, a symbol of both hope and caution. While it recently hit a new high, its 34-year journey paints a different picture than the quick gains often touted. This begs the question: is index investing truly the foolproof strategy it’s made out to be?
Lesson 1: Index Investing Isn’t Risk-Free: Don’t be fooled by the “always up” narrative. Japan, alongside examples like Hong Kong, proves that even entire markets can stagnate for decades. Remember, index funds simply mirror the market, good and bad.
Lesson 2: Drawdowns Happen: Even seemingly stable markets like the Nifty 50 witnessed a 65% plunge in 2008. Don’t assume index investing shields you from significant losses.
Understanding Long-Term Cycles: The Japanese chart reveals a crucial point: sometimes, decades of growth get “priced in” upfront. This means future returns might be lower than anticipated. Remember, markets are cyclical, and periods of exceptional growth are often followed by consolidation or even decline.
What This Means for You:
Be Prepared for Drawdowns: Have a plan to navigate market downturns. Consider diversifying beyond traditional indexes or employing active management strategies.
Embrace Patience: Long-term investing requires patience. Understand that exceptional growth phases might be followed by periods of slower appreciation.
Go Beyond Index Investing: While index funds have their place, consider incorporating a dynamic strategy that beats the index during downturns. This could involve momentum investing or knowing when to exit positions.
Momentum as a potential shied – Momentum investing will automatically rotate into the strongest performers at any given point in time thus avoiding the necessity to worry about some heavy weight underperformers in the index
Remember, the key to successful investing is being informed and adaptable. Don’t blindly follow trends; understand the risks and opportunities, and follow a strategy that aligns with your goals and risk tolerance.
The Japanese market serves as a valuable reminder: there’s more to index investing than meets the eye.
Strategy Spotlight
MRPL probably may not have been on anyone’s radar till recently. Why so ?
Simple. The stock has been an absolute non performer for TWO MASSIVE DECADES.
MRPL hit a high of Rs149 back in Jan 2008 and had been struggling within a tough range for a long time but things changed in March 2023.
The stock made a higher low indicating that the worst may potentially be over. It was in Jan 2024 that MRPL made a new all time high and has clocked a mammoth 100% gains since break out and an astronomical 5x gains (as on 19 Feb 2024) since Mar 2023. Mi ATH 2 picked the stock at Rs 121 back in Dec 2023 and has enjoyed a quick 132% gain in no time (as on 19 Feb 2024)
This once again proves two things
– Power of a long term breakout
– Power of non discretionary (momentum) style of investing where potential winners are allowed to enter without any bias and are also allowed to run till momentum dries out.
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