Six Common Misconceptions of Investors
The world of investing can be cold and hard. Especially when you start overestimating your abilities. Unfortunately, many also hold on some misconceptions and tend to act under their beliefs and perceived abilities. In this article, we explore some of these misconceptions and beliefs which are harmful to the interests of the investors.
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Understanding the Market Volatility
Yes, it is true. The market has delivered over 15% annualised returns since inception. Just for the records, the BSE Sensex was taken as 100 on the 1st of April 1979. Till the day of writing this article, the Sensex has delivered an annualised returns of 16.07%, not considering dividends. Unfortunately, most investors don’t get anywhere near that return out of their equity investments. While investor behaviour is to be largely blamed for this, the root cause of all is the volatility or uncertainty of the market returns. Understanding the volatility, accepting the uncertainty and risks is the first step of qualification for any successful investor. One needs to be comfortable and also understand that you are in control to make use of this volatility or react to it. This is where the real investors get separated from those learning the ropes. Many other factors determine your returns including lack of a proper plan, behavioural mistakes, wrong asset allocation, lack of patience and so on. However, we will restrict our discussion to the study of this volatility in this article. Let us first take a closer look at the volatility over short periods. We are using the BSE Sensex index closing prices since the year 1980 giving us 40 years of observations. What we have done is grouped the returns in ranges of 10% and 20% for monthly and yearly returns respectively. We have showcased the number of observations (periods) as count and given the average returns for these observations.
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