Ram: Markets are at an all time high… so many stocks doing superb! Wish my portfolio was better

Shyam: What do you exactly mean by “markets are all time high”?

R: Look at the Nifty & Sensex. Nifty is up 26% in the past 6 months, 31% YTD. Sensex is up 26% in the last 6 months, 28% YTD. Just yesterday, it was up 1%!

S: So by “markets”, you mean the indices – Nifty & Sensex. Isn’t that good? We are all benefiting 

R: Not really or at least I don’t feel that way. My portfolio is not.

S: ok, let’s draw an analogy. India is playing well and expected to win the world cup. Which of the 3 bets will you make?

  1. Betting on West Indies
  2. A dream team i.e best players picked from all teams
  3. Betting on India

If you bet on A, then you are being a contrarian. You may lose the bet this world cup but could be the winner in the next. (this doesn’t make sense in cricket and most things in life but in investing it does. This is one reason investing is simple but not easy. It “doesn’t make sense” to a centuries-evolved human brain)

If you bet on B, it’s your portfolio versus the index. (large majority of investors including fund managers struggle to win over the index consistently)

If C, betting on India as a team means betting on the Nifty or Sensex. If “markets” go up, you benefit. If “markets: go down, you lose. There is no dichotomy of markets (aka indices) v/s my portfolio.┬áindex = portfolio.

R: So, which bet has historically worked the most in investing?

S: There are no right or wrong bets. One can bet on all 3 options, equally or varying weights. World cup ends and a winner emerges. Markets are perpetual. Hence the winner is different in 1 day, 3 months, 1 year, 5 years, 10 years, 20 years.

The question is what is your time frame? T20 or one-day or test?