1,000 to 17,000: 9 money-making lessons from Nifty50’s journey

Markets continued swinging wildly this week with a mild positive bias. The market’s volatility in last 6 months or so has made a lot of retail investors wary of making investments. At this stage it becomes important to recognize that in spite of changing economic dynamics, global shocks, structural changes, Nifty has given a CAGR return of around 11 per cent in approximately 27 years or an absolute return of 1700 per cent. So a study of Nifty’s journey from 1,000 to 17,000 brings about some key insights, which are briefly laid down below: Strike Rate is Overrated: Nifty has been right only 55 per cent of the times and despite that delivered a handsome 11.31 per cent CAGR. Hence, there’s no need to be right all the time. Half the time is good enough. Let your winners run: Nifty’s average winning position is 1,500 per cent and average losing position is 45 per cent. A position in profit is proof that you were right. Let it run without the urge of constant profit-booking. Not only ride, l et your winner’s age: Nifty’s average winning position is held for an average of 12.5 years and the average losing position is held for about 4 years. Give your winners more time. Don’t need to be hyper-active to make money: In its long and continuing lifespan Nifty has undergone only 150 trades with an average of 4 stock rejigs in a year. Despite such a low churn, it has managed to deliver an over 11% CAGR return. Churn only if required. For a stock to be a 100-bagger it needs to be a 10-bagger first – Nifty only buys proven winners. It doesn’t predict winners but instead waits for actual winners to emerge and in many cases ends up buying after a stock would be up many-fold. Better to buy winners than predict. All you need is just 3-5 ideas in a lifetime – ONLY 3 stocks have contributed to more than half of Nifty 50’s absolute returns in 27 years – , and . No need to constantly hunt for ideas. An individual investor could cut losers even faster – Despite a clearly large losing positio n, the NIFTY waits for a stock to fall below to its lowest rank to exit. An Individual has many advantages vis-a-vis an Index or Fund Manager. It’s better to buy high and sell higher than merely buying low and selling high – Nifty makes most of its entries at All Time Highs without worrying about being late and yet manages a handsome 11% CAGR. Investor’s job is to make money – Not buy at lowest possible price. Pick a style/method of investing and stick to it – NIFTY’s style is Bhav Bhagwan. It does not evaluate the financials, does not meet managements, and does not know the business the company operates. Despite this it manages to make money. So investors can apply these lessons to their investing journeys and hopefully generate good returns along the way.

Technical Outlook

Nifty 50 closed positive this week and both the benchmark index as well as Bank Nifty bounced back from the lows formed last week. Despite the bounce, we believe the market has not completely bottomed out, as the price patterns on Nifty reflect that the up- Even if we look at the weekly trend of S&P 500 index, a Head and Shoulder breakdown has been witnessed. Having said this, a short term bounce cannot be ruled out. Whether the bounce will unfold as a relief rally or the start of a new bullish move is not evident as of now. So considering all these factors, going into the next week we suggest traders maintain a cautiously bullish outlook as long as Nifty does not break below 15,700 levels.

Expectations for the week Given a slew of key economic data releases, the current earnings season, and the monthly expiry, the volatility seen this week is anticipated to persist. The FOMC minutes, the GDP growth rate estimates of the USA and the initial jobless claims will drive the global market sentiments. Back home, the data on India’s Foreign Exchange Reserves that was in the news for dropping to a one-year low and the INR/USD movement will be closely tracked. Markets will remain choppy and investors are advised to stay on the sidelines till a clear direction emerges in the market. Nifty 50 closed the week at 16,266.15, up by 3.067%.