Why people lose money in best performing funds

Why Do So Many People Lose Money in Top-Performing Mutual Funds?


I have observed that a lot of people tend to lose money on their investments in top performing funds. The reason is not the performance of the fund but the temperament of the investor himself. You would think why would an investor lose his/her money in the best performing fund.


The reasons can be plenty but I would highlight some of the reasons below:


  1. It’s because of investor’s inability to hold onto his/her investments for a long period of time. By saying a long period of time, I generally mean a minimum time span of 10-15 years. You need to give at least this much time to your investments in order to build a huge wealth.
  2. Secondly, I believe that people tend to buy when the markets are rising. They prefer to buy in the bull markets when the prices are too high and sell them in panic whenever a crash happens.
  3. Apart from that, people generally get impatient and sell their investments in a year or two if they don’t get to see much appreciation in their wealth. They need to understand that building wealth is a long-term process. Even a baby can’t be produced in one day.


The thumb rule is: Unless you don’t learn to sit tight on your investments and sell them in panic, you’ll keep on losing your money.


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Investing Thoughts

Weekend Thoughts – 1


  • Apart from investing your money, you must invest in yourself as well. The more you learn, the more you earn. And the more you invest.
  • No matter how much you earn. If you don’t gain the required financial intelligence, you won’t be able to preserve it.
  • Avoid investing in penny stocks. Just because the price is low doesn’t mean you’ll get the growth and quality.
  • If you want to earn average returns, invest in Index Funds. If you want to achieve extraordinary returns, you’ll have to do extraordinary.
  • As long as you are avoiding the market hiccups, you are on the road heading towards getting rich.
  • Invest the money which you don’t need for 10-15 years. Make it grow by compounding it year-by-year. Works best in long-term.
  • If you develop the conviction of achieving 1000% from your pick, you won’t settle with early 10-20% gains. Your behavior matters the most.
  • If you invest in appreciating assets(equities), you’ll reap the benefits some day or another. Avoid investing in depreciating assets(cars).
  • Cigarettes & Tobacco – 2K Monthly. Do you know how much money you lose? At 12% CAGR, you can turn it into 1.1Cr over 20 years.
  • Always focus on long-term strategy. By reaping benefits of long-term compounding, you can convert a paltry amount into a huge corpus.


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story of indians of manhattan

Those $24 Are Worth $281-Trillion Today!!!


I am sure that all of you must have heard about the famous Manhattan Island in New York City. It’s one of the financial and commercial centers of America which also includes the iconic Empire State Building as well as Times Square.


But do you really know how much did Indians of Manhattan get from immigrants by selling it in 1626? Just$24.


Yes, Indians of Manhattan sold the whole island for $24. Today, the book value of the whole land is worth $30-Billion (as per reports). And if you believe the market reports, the value of the land should be double the book-value i.e. $60-Billion. The value appreciated by whopping 216666666567% in these many years. Big deal, right?


Hold on. Let me show you the other side of the story.


What if the Indians of Manhattan had invested those $24 in 1626 at the rate of 8%? Well, the amount of $24, compounded annually at the rate of 8% in a time period of 1626-2017, would have been worth $281-Trillion. Money would have compounded for whopping 391 years. 


Had they invested it at 7%, the final amount would have been $7.4-Trillion. And that’s the difference a minute change in percentage makes. A difference of 1% CAGR would have reduced the final amount by a huge margin of $273.6-Trillion.


Lessons to be learned from this story:


  1. Always take a long-term perspective while investing your money.
  2. Let your money compound for a long period of time. It’s when it works best.


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how she made millions

Story of a Patient Lady – How Anne Scheiber Made $22 Million


Guys, let me share a success story of a woman who made millions by staying patient and calm in a stock market.


Her exceptional investing journey is a lesson for all investors who get panicked by the ups and downs of stock markets and reap the profits/losses by thinking short-term. She is a true example of buy and hold strategy. During her investing career, she hardly sold her holdings. One can learn from her the buy-and-hold strategy.


Let’s read her story.


Anne Scheiber, born in 1893, was an auditor in IRS and made not more than $4000 a year. Being a Jewish as well as a woman, she hardly got any promotion in her career and retired with a corpus of $5000 and an annual pension of around $3100 per year.


With a frugal lifestyle and high savings, she started her journey with a buy-and-hold strategy. As she had an ample amount of time in her retirement phase, she picked up some marvelous dividend paying companies(Coca Cola, Abbott, Pfizer etc) during the course of time.


Anne Scheiber Portfolio

Anne Scheiber Portfolio


At the time of her death, at the age of 101, her portfolio valuation was around $22 Million.


The biggest secret behind her success was the time she gave her investments to grow and patience to hold on. She never interrupted the process of compounding and let her portfolio grow by giving it a huge time period of 50 years.


What can you learn from Anne Scheiber?


All we can learn from her is – Being Patient. Just buy good companies and hold them forever. Never interrupt the cycle of compounding. You’ll reap the benefits of compounding.


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How Many Stocks in Portfolio

How Many Stocks Should You Own In Your Portfolio


Well, this is the question I get asked many times at my workplace from my numerous colleagues as well as friends.


What I have seen in my investing career is that people tend to own as many stocks as they can. Without keeping a check on the performance of those stocks, they keep on adding new stocks which they find in newspaper clips or as tips from friends. In fact, I personally know a friend of mine who owns around 120 stocks in his portfolio. Does he really need to over-diversify his portfolio in order to earn money from stocks? No!! Over-diversification just dilutes the returns. In other words, it’s not even diversification. It’s di-worsification (a word given by Peter Lynch).


Too many stocks in a portfolio minimize your returns. Whereas, if someone holds too less, it may get exposed to a risk of underperformance. Because even if a single stock underperforms, it will drag down the performance of the whole portfolio.


The question is – How many stocks should be added to a portfolio? Ideally, one should have 10-15 stocks in a portfolio. Selecting a range of stocks from diversified sectors and industries tend to give stellar returns. A concentrated portfolio tends to perform better than an over-diversified portfolio.


I am not saying that you can’t keep more than 15 stocks in your portfolio. Of course, you can but it shouldn’t hamper your portfolio’s performance. As long as you are okay with your performance, you can add as many stocks in your portfolio as you can.


Benefits of keeping a concentrated portfolio


Listed below are few of the advantages of keeping a concentrated portfolio.


  1. Rocking Performance: If a selection of stocks is done with proper due diligence and research, you tend to gain a lot of profits from the performance of those stocks. All you have to follow is – Buy Right, Sit Tight – philosophy. You just need to buy your picks and hold onto it for a long period of time in order to achieve maximum gains.
  2. Effective Monitoring and Research: With less number of stocks in a portfolio, you’ll be able to monitor your portfolio effectively. With a large portfolio, monitoring the stories of each stock can become cumbersome.


So make sure that you don’t play with your returns by over diversifying your portfolio. A healthy portfolio of 10-15 stocks will work really well for you in the long term.


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Ever Heard of Multibagger Mutual Funds

Have You Ever Heard of Multibagger Mutual Funds?


We often come across conversations or articles where we hear about multibagger returns from the stocks and shares. But we hardly hear about multibagger Mutual Funds. Have you ever wondered why?


The other day, I was reading a nice piece of information shared by Aarti Krishnan in Value Research Magazine October 2017 edition. She gave nice insights on this particular topic. Let me give you a brief here.


Equity investors in the stock market, who prefer to invest in companies stocks, earn multi-fold returns compared to the ones who invest in Mutual Funds. Their profession may not allow them to spend time in researching individual stocks. Hence, they prefer to give a part of commissions to the fund managers and earn money through his research and investing skills. Do you believe that Fund Managers of renowned Mutual Funds are not that averse to picking multibagger stocks? Obviously, they are but they need to keep the fund performance in the account as well.


When does a stock become multibagger?


In order to achieve multibagger returns from a stock, one needs to hold it for a long long period of time. That too with patience and total conviction that this is the best bet. Years of sitting on your couch and holding it will give you stellar returns. Thus, you can say that the holding period is huge.


Ever heard about Symphony Coolers? It gave stellar returns only after years of holding it for a huge duration of time. It’s stock of Rs.0.43 in 2005 became a multibagger in year 2015 with an all time high of Rs. 1635. Those who had the patience of holding it till the end earned a lot of money from just single stock.

It also takes other factors into account such as its Profitability Growth, Revenue Growth, Return on Capital Employed etc. A business takes time to achieve a multibagger growth. And likewise, the stock price moves along with the performance of the company.


Can Fund Managers hold the stock for a long period of time?


On the other hand, Fund Managers find it difficult to hold a stock for a long duration of time. They are accountable to the investors for the inferior fund performance. Just imagine, had he held Symphony Coolers for 7-10 years, would his fund returns have beaten the benchmark? The answer is no. They can’t hold on to stocks for years just like that. They need to provide the fund performance report card every year.


Investors in Mutual Funds love to watch their money grow from time to time. They just can’t sit idle and wait for years for a stock to perform.


Thus, you’ll never get to hear about a multibagger Mutual Fund. 


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