A respected market analyst who also writes for the Economic Times and runs his own portfolio consultancy services, recently blogged in the Economic Times that a sum of Rs 10 lakhs invested when the Sensex began with a value of 100 in 1979 is worth Rs 26 crores today.
Let's not debate on the calculation, because Mr Parag Parekh is a respected person when it comes to stock market analysis and carries a solid reputation.
Through the article and over the years, the one thing that people have stressed is: Investing for the long term. That is where the problem lies as its almost impossible to set that discipline.
If you see a stock has given you 50 per cent returns you just want to exit. When the markets crash you just want to get out first. It's almost impossible to hold stocks for so long from 1979 till 2014.
The problem with those who do not invest in equities is this: they either consider the calculation as fake and over exaggerated and the others who invest in the market lack the discipline. What is this discipline? The discipline is to hold stocks for a lifetime without selling the same.
It may not always work though
There were many stocks in 1979 which were a part of the Sensex and are not there anymore. Somebody who invested in Hindustan Motors in 1979, which was a blue chip then, may find that he has not made money, though he has held it for long term. It may not always work and the best way is to hold long term in a basket of good quality stocks. All good quality stocks may in the end not suddenly disappear.
And sometimes if you are blessed in having bought a quality stocks like Infosys, suddenly you realize your portfolio runs into crores.
Should Equities be a part of your portfolio in 2015?
It's almost impossible to make money from fixed deposits. Until recently annual CPI inflation was in double digits and interest rates on fixed deposits was also in double digits. What this meant was that if fixed deposit rates were 9 per cent and CPI inflation was the same, you would have ended up making no real rate of returns. So, the only two options investors see is equities and real estate. The problem with real estate is that it is a long term game and is highly illiquid. If you need money for emergency you are not going to be able to liquidate real estate very easily.
So the best option is to stay put in equities and hold for the very long term. If you need money liquidate or else just hang on in. You are likely to make money in good quality stocks.