What if you were the world’s unluckiest investor?

[This post was inspired by Ben Carlson’s post: What if you only invested at market peaks?link on his fantastic blog ‘A wealth of common sense’. Highly recommend following Ben on twitter @awealthofcs]

What would your returns look like if you were the world’s unluckiest investor?

Fairly early, you decided you would diligently invest a fixed amount in Indian equities every year. You would even increase the amount invested year-on-year in line with your increase in income.

However, you spend most of your year on remote oil rigs in the middle of the ocean or mines out in the hinterland, with no opportunity to communicate with your broker or log into your brokerage account. Except for one random working day in the year when you’re in civilization and do all your chores, including buying a low-cost NIFTY ETF. You started with ₹25,000 way back in 1990 and increased the annual invested amount by 10% until 2017.

So far so good.

But you are the unluckiest investor in the world. The day you buy happens to be the NIFTY’s peak for that calendar year. This happens every year for 28 years. Now that’s unlucky!

This means you bought in Feb 2000, when the dot-com bubble was at its peak, in Jan 2008 when markets had run up, waited till Dec 2009 only when markets had recovered well from the sub-prime crisis, and so on until 2017 where you bought the year’s high in Nov 2017 (as of writing this post).

But here’s the thing; You never sell. You still hold every unit of the NIFTY ETF you ever bought.

Any guesses on how you think you did?

The chart shows portfolio value of the unluckiest investor (picks the year’s market high to invest) versus two other investors. The ‘Don’t Care’ investor who invests on the first trading day of the year irrespective of market levels, and the ‘Lucky’ investor, who manages to catch the NIFTY at the year’s low, every year for 28 years.
The Calm Investor | World's Unluckiest Investor

Note that all three have invested the same aggregate amount over this time frame: ₹33.6L (25k increasing by 10% each year). The difference between the three investors is what day of each year they invested their money.

Unsurprisingly, the lucky investor ends up with the highest portfolio value worth 1.64 Cr, 59 Lakhs better than you, the world’s unluckiest investor. Surprisingly however, the ‘Don’t Care’ investor, by investing on one set day each year ends up with a portfolio of ₹1.41 Cr, just 23L off the luckiest investor.

The Calm Investor | World's Unluckiest Investor

Lessons to take away from the world’s unluckiest investor:

  1. Note how in spite of consistently investing at the peak each year, you end up with a portfolio of over ₹1 Crore and a double-digit annual return (10.8%) that handily beats fixed deposits
  2. The difference over the long-term between the unluckiest (10.8%) and the luckiest investor (13.9%) is 3% annually. Yes, that’s significant, but if you think of the extraordinary extremes of luck needed to be in either camp, it is a surprisingly narrow band
  3. The ‘Don’t Care’ investor’s performance should prove that looking for market bottoms is over-rated, in addition to being impossible. Time in the market is more important than timing the market

Turns out, even an unlucky but consistent investor who buys and holds for the long-term doesn’t do too badly.

Note:

  • This is a theoretical exercise. The NIFTY only officially started as an index on Nov 3rd, 1995, but values leading back up to July 1990 have been calculated assuming the same constituents. Data sourced from niftyindices.com
  • There would be some expense ratio (~0.40%) associated with investing even in an ETF, which would reduce the return for all three portfolios comparably

 

5 thoughts on “What if you were the world’s unluckiest investor?

  • November 7, 2017 at 8:49 pm
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    Very interesting. I wonder how a portfolio of stocks with good prospects ( small and midcaps) would have fared if they were never sold ? Capitalmind has done a similar exercise and drawn up some very interesting conclusions.

  • November 7, 2017 at 8:50 pm
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    Also why not calculate it from 1995 instead of 1990 ? Do the numbers change radically?

  • November 8, 2017 at 10:21 am
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    The longer the timeframe, the more reliable the findings are. In India we’re constrained to barely a couple of decades of data, so when more is available, makes sense to use it.

  • November 8, 2017 at 10:22 am
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    Interesting. Please share the link if you happen to have it.

What do you think?