According to the Netra June 2023 report published by DSP Asset Managers titled “Early Signals Through Charts,” over the past 123 years, the Indian stock market has generated a real return of 6.6%, which is higher than the returns generated by the US and Chinese markets as well as the global equity markets.
This indicates that since 1900, India has increased investors’ wealth at a compound annual growth rate (CAGR) of 6.6%, exceeding the 6.4% CAGR of the United States and the 3.3% CAGR of China. The pre-cost and pre-tax actual returns generated by the global equity markets are 5% CAGR, according to data from the research.
’This is an excellent rate of return to compound one’s wealth over a century, given that one has the patience to not interrupt the compounding process,” said DSP in its report.
In its analysis, DSP stressed the need of long-term investing for increasing CAGR by pointing out that the average lifespan of S&P 500 firms was 75 years in 1937. When the lifespan is decreased to 12 years in 2023, a firm is replaced in the index every 12 years, and some simply pass away.‘’
Warren Buffett and Charlie Munger sidestepped the Dot Com frenzy and under performed Nasdaq Index by 155 per cent over 1998 and 1999, the peak of the tech bubble. However, over the full cycle from 1992 to 2008, Berkshire Hathaway earned a 14 per cent CAGR vs the Nasdaq which earned an eight per cent CAGR over the same period,” added DSP in its report.
Rakesh Jhunjhunwala’s famous quote, “Funda Ka Ho Gaya Mental,” proves to be time testament to the futility of second-guessing market changes. ‘’This approach has played a pivotal role in Jhunjhunwala’s success, showcasing the power of strategic investing in generating substantial wealth over time,” added the report.
The annualised rate of returns for different investment instruments or asset classes, including the S&P 500, bonds, EM stock, and small caps, among others, during a 20-year period was also emphasised in the Netra June 2023 report. It was discovered that the average investor return, produced between 2001 and 2020, was only 2.9%, below other main asset classes like houses, bonds, stocks, small caps, and REITS.
Real-estate investment trusts, or REITS, produced the highest 20-year annualised return between 2001 and 2020 (10%), whereas the “commodity” asset class produced the lowest return, dipping below zero and approaching negative percentage over that time.
