Showing posts from November, 2020

Can we time SIPs?

Time is an illusion - Einstein in Theoretical Physics Time  Timing is an illusion - Einstein in Stock Markets* We will straight away jump into what this article will try to answer. Question: Can a retail investor, one who receives salary every month, time the markets to achieve better returns while doing his Systematic Investment Plan? Conditions: The retail salaried person only does Index investing in Sensex. Assume that on Christmas in 1979 he decided to start an SIP in BSE Sensex with an ETF or an Index fund with no expense and no tracking error. Hypothetically assume these instruments existed since then (even if there is an expense we can reduce the returns appropriately). His strategy was Buy and Hold forever. Short Answer: No we cannot time our SIPs. Long Answer: With a lot of effort (which we will not discuss in this post) we can just scrape ahead of the index but the gains are not substantial enough in this long period of 40 years. At least in my opinion. Let us look at some

Measuring Risk: Utility Functions by Daniel Bernoulli

Background on these posts  Apart from reading books I think we must read Journal Papers. Now there is a problem in doing so - it's complicated, right? Yes they are and I feel they are made to be so deliberately as the end audience is not the common man but rather a specialist. I have read quite a few over the years, some I understood pretty well and some very minimally given my limited mathematical abilities. But in going through these papers I always could derive the essential takeaway - the crux. Also one problem I saw was application. I don't see how all these papers could be applied be it in actual trading or in developing some heuristic for our investing endeavour. Therefore I thought over time I will start doing the following 3 things: Crux : Summarise key points in some 'good' papers in plain english Simplify : Remove math formulas from the papers as much as possible Actionable : Share my ideas on application of the concepts in that paper Sometimes will throw in

Returns Expectations from Equity Investing

As amateur retail investors one question we usually do not know the answer to is - What is the return we can expect on a very long term time frame from investing? When we meet experts or see claims on twitter of a 30% annualised return how should we benchmark that in our minds. The returns mentioned in this article is based on the CAGR  formula. Next time when someone throws at you that his CAGR is 30% then you should quickly be able to know how good that number really is. More importantly this is an article which encourages you to tone down your expectations from Equity Investing. We try to see what returns we can expect from Index investing which is looked at boring and yielding very low returns. Let's see. Data Details For this analysis we have taken daily data all the way from 3rd April 1979 of the BSE marquee index the SENSEX. We have data till 4th November 2020. That is 40+ years worth of daily trading data. The argument which usually people give is that 'oh that is too s