The courage to stay invested in the stock market

Very few people have the courage to stay invested in the market for long periods of time. And this includes those who invest in the market through the mutual fund route.

There are several reasons for this, but the number one reason has to be market volatility. Very few can handle it.

Think of it this way. Let us say you invested 10 lakhs in the market, when ‘Nifty 50’ index first hit 10,000 points. The date was 25^th July 2017.

Exactly 5 years have passed. Today the Nifty is at 17,500 (August 2022).

The returns are decent — 11.84% CAGR over a period of 5 years. Comfortably beating fixed deposits, the interest rate of which has been hovering between 5-6%.

But what the numbers do not show is the pain the investor has suffered through the last 5 years.

Here is the journey of the 10-lakh investment through ups and downs.

1. July 2017: Nifty hits 10,000. Investment of 10-lakh is made.
2. January 2018: Nifty hits high of 11,100. Investment value 11.1 lakhs. 10% returns in quick time. The investor is happy.
3. March 2018: Nifty falls back to 10,000. Investment value back to 10 lakhs. Almost 9 months has passed, zero returns so far. Investor begins to feel, a fixed deposit was probably better.
4. August 2018: Nifty touches 11,750. Investment value is 11.75 lakhs. Decent returns over a 1-year period. The investor is happy again.
5. October 2018: Nifty back to 10,000 yet again. Value back to 10-lakhs. The investment begins to get uncomfortable – no returns in 15 months!
6. June 2019: Nifty zooms to 12,000. Investment value, 12 lakhs. Suddenly, the investor doesn’t remember all the pain. The returns are decent, after all.
7. January 2020: There have been a lot of ups and downs over the last 6 months, but the Nifty is still at 12,000. The investor is able to handle the volatility much better now. The small 5-10% falls aren’t causing stress anymore.
8. March 2020: Covid hits and Nifty crashes. From 12,000 to 7500 in less than 30 days. The investor who was comfortable with 10% falls, has just seen a 40% crash. It seems like the end of the world. 10 lakhs investment is down to 7.5 lakhs. Analysts on business channels claim the Nifty can crash further to 6000, 4500 and more! But the loss is 2.5 lakhs – very difficult to sell. The investor takes the painful decision to hold.
9. October 2020: How did this happen? Many businesses have shut down, most are struggling – but the Nifty is rising. From a situation of no hope, the investment is back to 12 lakhs. Is it the right time to sell, how much more can Nifty rise from here? It is already at pre-Covid level. After all the pain, the investor feels like selling his investment, but decides to hold.
10. October 2021: The best year of the investor’s life. From the most hopeless of situations, Nifty has crossed 18500. The investment value is now 18.5 lakhs. Extremely happy with the returns would be an understatement.
11. June 2022: 5 years have passed and the Nifty has crashed again to 15,000. Inflation, Recession, War. This has to be the right time exit. What if Nifty, like some analysts are saying, crashes back below 10,000? Let me keep the gains that I’ve already made?!
12. August 2020: After a sharp rise, Nifty is near all time highs again. Time to book profits or stay invested? The uncertainty continues…

5 years, 11.5% returns. Better than FD, better than most other asset classes. But is it worth all the pain?

The answer is simple. If you cannot handle the pain of seeing your investment going down by 10-20% regularly – then equity investment is not for you.

If you cannot handle 40-50% falls once in a decade, sometimes even twice in a decade – then again, equity investment is not for you.

Staying invested takes a lot of courage. But the stock market is a place where life-changing miracles can happen. There have been many stocks which have gone up 10 times or more in the last 2 years.

Bajaj Finance has given 100x returns in the last 10 years. As cliched as it might sound, 10 lakh investment in Bajaj Finance in 2012, would be 10 crore today.

The question is – how many can handle the volatility and stay invested for such long periods of time. If you can, the market will reward you. If you cannot handle risk, if you cannot handle the glorious ups and painful downs – the stock market is not the place for you.