What is a good return to earn from your investing? In the absence of any accepted benchmark most are prone to thinking that higher is better. And the mutual fund industry has made beating the benchmark index eg Nifty 50 the minimum that must be crossed and by a margin to be considered the mark of good investing. But in the matter of earning returns the paradox of ‘more is less’ beyond a certain point is very apt. Why is it so and what’s the ‘right’ answer?
Last year I conducted quite a few webinars on Investing successfully when I asked people what returns they expected to earn from investing in stocks. The most common answer was 20-25% CAGR.
Are you also expecting 20-25% returns?
When I ask why this number, the conversation goes something like this
Them: kyon ki hum riks le rahein hai, bhai. I can almost see everyone nodding in agreement.
Me: Oh, you mean risk.
Them: Wahi toh, riks, toh 20-25% toh banta hai.
The only difference with the urban English educated gentlemen was that they know its risk and yes, they expected the same reasonable returns, CAGR.
Smarter ones: Market toh 12-15% deta hi hai. So, when we come to you, you must get us something more like 25%.
I hold onto my patience but only by a thread and then say nicely, atleast sometimes: If that was so doable, why would I or anyone capable of doing this waste time talking to you? We would borrow lots of money at 12% and earn double of that. And every other mutual fund would be delivering 25% CAGR!
Most people go silent after hearing this, they didn’t expect me to be so candid, at least not so early in the webinar. They are probably disappointed or angry that I bust their bubble. I think some leave my webinar sure that I am an idiot who does not know how it’s done and is making excuses.
Then if I am lucky there will be a Munnabhai in the group who will ask: Yeh CAGR kya hai?
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