At the age of 33, comic actor Chris Farley was at the peak of his career. In the spring season of 1990, he became a national star with his performance at Saturday Night Live TV show where he tore off his shirt, flaunted his fat & flabby physique and danced to the tunes of “Working for a Weekend”.
But what really made him one of the most promising comedians was his energetic performance in Beverly Hills Ninja (1997). He played distinct hilarious characters in his fable of an orphan kid being found by a motley bunch of Ninjas and nurtured in their own ways before departing to Beverly Hills to investigate a murder mystery.
In his famed career, he hosted 100 episodes of Saturday Night Live TV show and acted in 10 movies. But none of these lasted more than 10 years.
Image: Chris Farley in Beverly Hills Ninja (right) | Source: The AV Club
On December 18th, 1997 he was found dead in his apartment. One Wrong Step of snorting a combination of Morphine and Cocaine (a lethal combination called speedball) turned out to be toxic and took his life.
A man who walked around being funny all the time while receiving tons of accolades killed his own illustrious career with one wrong step. The deadly consequences didn’t let him even enjoy the fame of being a comic that made him extremely famous throughout his short span of the career.
Sprinter Tyson Gay ruined his career that way. Seven times Tour De’ France winner, Lance Armstrong, destroyed his momentous cycling career that way. Just one wrong step.
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In the arena of investing, one wrong step of reacting emotionally to the global events can affect our investment returns immensely.
For instance, in 2008, the Lehman Brothers had filed for bankruptcy in the US. As a consequence, a single-day drawdown of around 5% was observed in the US markets. The aftereffects of this unfortunate event had already started engulfing the whole world into a dark cloud of recession.
Even the Indian markets weren’t spared. The capital markets here fell down by more than 40%. From a peak of 21,206 in January 2008, the SENSEX declined to 7,697 in October 2008.
The fall in the index started inducing fear among the investors. Consequently, they panicked and started losing their patience to hold when everybody else around the corner was losing his/her clothes. Eventually, the emotions overpowered the capability of reasoning and thus began the selling spree. Along with the junk stocks, even the quality ones with the strong underlying businesses and fundamentals were hammered.
Image: The 2008 Recession | Source: Google Finance
But, under the influence of fear, investors forgot to remember that after every dusk there is a dawn. Soon, the optimism started prevailing over the phase of pessimism. From April 2009, the index began to gain its shine which somehow had been lost drastically during the recession. The investors, who had panicked during the fall, failed to accumulate the remarkable returns that the market had to offer in the next successive years.
Image: Upside in the Indian markets after 2008 | Source: Google Finance
As per the stats shared by a Boston-based financial community, Dalbar, an average equity investor underperformed the S&P500 index by 3.52%. The analysis evaluates the results of one wrong step (emotions-driven decision making) taken by investors encompassing the crash of 1987, the drop at the turn of the millennium, the crash of 2008, plus recovery periods of 2009, 2010 and 2012.
In 2015, the 20-year annualized S&P return was 8.19% while the 20-year annualized return for the average equity mutual fund investor was only 4.67%, a gap of 3.52%.
~Quantative Analysis of Investor Behavior, Dalbar
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In the last 10 years, a lot has changed. Be it the Govt. of India or other global macros. And yet, in a decade, SENSEX has managed to touch new heights in 2017-18 from the lows of 2008.
While investing, we must consider a time horizon in terms of decades, not a few months or years. Considering the future decades, the current carnage happening at Dalal Street will soon become a part of history. But no one really knows when. The only thing I can assure you is that India will keep on prospering at the global level. The recent rise in the Ease of Doing Business ranking solidifies its prospects.
Meanwhile, let’s not stop our compounding engine with one wrong step of reacting irrationally to the events which aren’t even under our control. Let’s not take one wrong step of selling our quality holdings under the blindfold of panic and fear. Let’s not pursue one wrong step of redeeming our funds and deprive ourselves of the future returns that lie ahead of the current situation in the market.
As my dear friend FI says – “This too shall pass !!!”.
PS: The word “Wrong” has been intentionally written as “Wrogn”. It’s a mere coincidence that it resembles the brand name endorsed by the Indian Cricketer Virat Kohli
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Related Post: When Left Untouched
The cover image has been taken from The Fix
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