There are many different styles, approach, and methods of investing. Many individual investors focus on trading (swing, positional, momentum, speculation, technicals etc.), while many others focus of investing (value, growth, blend, etc), and still many others on special situations (opportunistic, arbitrages, etc). In addition, there are quite a few individual investors that attempt at combination of trading and investing. Similar to glass being half full or half empty, I believe every style has its own pros and cons’ depending upon in what context one is looking at it. Individuals have to figure out what works best for them.
Readers are already accustomed to my approach of dividend investing. I am a long term buy and hold investor and prefer to buy my positions at fair values (fair value calculation methodology). The reason I use fair value is because, I do have enough expertise to determine the tangible book value. While I still use book value based on Graham’s method, it is not the only one on which I base my decision.
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I presented a long term view about expected return for SENSEX. I mentioned that the compounded expected return was 12.1%, while the arithmetic average was 16% per year.
Today, I am discussing the short term perspective using a NIFTY index. Similar calculations can also be done using SENSEX, but I believe NIFTY is a better representation. I calculated daily returns, weekly returns, and monthly returns for NIFTY from August 2002 to May 2009. In all three cases I have used average closing value on a given day, given week, and given month. The table below shows the summary for these results.
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I conducted a poll on MoneyVidya site to get a feel of what users understand about the expected returns on yearly basis from SENSEX index. In the image below, you may see the question that I asked in the poll and four options that I gave to the users. The poll received 54 votes out of 2000+ users at that point in time. That is approximately 2% to 2.5% as a sample size. With this small sample size I do not think we can draw any conclusive results. However, I do believe that it is an indicator and demonstrates the directional trend.
Poll on MoneyVidya - Expected Return
Based on my calculation from Year 2001 to Year 2009, the compounded expected return for SENSEX was 12.1%. At the same the arithmetic average was 16% per year. Majority of the user in this sample size (52% or 28 users) said the compounded return for last ten years is between 11% and 20%. At least based on this small sample size, the majority of users on MoneyVidya site seem to have realistic expectation.
I performed this poll with a long term view of more than 2 years. So it is likely that many of user may wonder whether it makes sense to provide a long term perspective.
In my next post, I will discuss short term returns using NIFTY index.
