Its tomorrow that Matters

Good returns are seldom made on investments made in good times.

Rather, good returns are typically made on investments made in adverse times.

There is a fair value for listed companies, just like for companies that are not listed. In good times when the stock markets are doing well, companies typically trade above fair values and in adverse times when markets are not doing well they tend to trade below fair values. In the long run, markets do not sustain at either overvalued or undervalued levels, rather move close to fair values. This is why investments made in adverse times typically yield above average returns and vice versa.

These are not my words but match my views or vice versa 🙂 This is written by Mr Prashant Jain, CIO, HDFC Mutual Fund – “Its tomorrow that Matters”.  You can download the complete note from end of this post. I thought it is really important to share this report with you at this point of time.

Relation between Market Valuation & Performance

Besides, the fair value of markets / companies is not stagnant; rather it is increasing at roughly 15% p.a. This rate is broadly the same as the nominal growth rate of GDP since companies in aggregate represent the economy itself. India’s nominal GDP growth rate (real growth rate plus inflation) has been 14.1% p.a. since 1979. Current GDP growth rates over last 3 years of 16% p.a. (7.9% p.a. real growth and 8.1% p.a. inflation) are similar. It is not surprising therefore, that the Sensex has yielded nearly 15% p.a. returns from inception in 1979 till date. (At 16.6% CAGR over 1979 – 2012, 100 has become 16000 (160 times). This is the magic of compounding and that’s why it is said that time in the markets is more important than timing the markets.)

Collective expertise at mistiming

Buy low and sell high is what everyone suggests and that is what everyone would like to do.

The reality however for a typical investor in equity markets / equity mutual funds is somewhat like this – buy high, buy more higher, buy even more even higher, buy less when market falls, buy lesser if markets fall more and buy nothing when markets are really down.

This behavior is best illustrated by the following table.

This pattern of an overwhelming majority of investors mistiming the markets repeatedly and consistently is a key reason for the unsatisfactory experience of the majority from equities and for the poor equities ownership in India.

While there can be many reasons for this collective expertise at mistiming, the key reason probably is:

A majority of investments in equities are not done with a long term view, despite the fact that the best that equities have to offer is only over long periods. This is unfortunate, as by investing with a short term view, investors are not benefiting from the compounding potential of equities.

Sensex Vs Gold

Difficult markets or bargain markets?

Bargains are available only in challenging environments / in markets characterized by weak sentiment and seldom when the going is good / sentiment is strong. That’s why, from an investor’s perspective, a more appropriate way to describe the current markets would be bargain markets and not difficult markets.

Times such as present, when the markets are not doing well should actually be looked upon as a window of opportunity for savers to invest more into equities, so that when the good times come, there are meaningful investments in equities to reap the benefits from. The lower the markets are, the bigger is the opportunity and the longer the markets remain depressed, better is the opportunity for savers. In a lifespan of investing of say 30-40 years, it is unlikely that the markets will provide many such windows. In the last 20 years there have been only 3-4 such windows.

Sir John Templeton “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”

Needless to say, pessimism is all that one sees all around.

Download Full Report Its tomorrow that Matters (Disclaimer as per the attached document.)

Feel free to share your views or ask any question in comment section.


  1. Dear Hemant,

    You are doing a fantastic job by explaining financial planning on a level that any person with basic financial knowledge can understand. I would like to ask you one thing – Considering that risk on equities is higher ,is there a safe/recommended % of profit at which one should sell or book a profit on their shares bought without holding it for a long term , and then probably move that profit to a safer investment modes like FDs or balanced MFs etc ? Or is it advisable to hold the equities for long term keeping a financial goal in mind ? On long term perspective,you might end up earning 100 % profit or you might loose all the money also. Instead of that, book a profit at a comfortable level ( say 15 – 20 % ) and exit , again buy book at same profit …..Is this a good trading strategy ? Expecting your expert advice.

  2. Excellent post Hemant.

    It is a blessing that we have such a prolonged bear market, doesn’t happen often.

    I really like how you ended the post with Sir John Templeton’a quote..:-)

    Again, good job.



    • Hi Vikas,
      Its a blessing but people think its a curse. “Its a bad market for sellers not buyers”.

  3. Hi Hemanth,

    Very good article. Iam investing in stock markets since 3 years and know the importance of investing in markets when they are low, this article gives more insight and gives me some kind of optimism that what Iam doing is right and profitable in the long run.

  4. Hi Hemant
    I have been waiting for this article from you for a long time. Hopefully, this will give some cheer to readers when everything looks so gloomy.

  5. Every time the markets falls for a few days the retail investor requires reassurance with numbers. Who better to do it than a celebrity fund manager. The problem with number is one could write a story like this as well link

    Not sure if we can shrug this off lightly as each business days is unchartered waters for the expert and lay man alike

    • Hi Pattu,
      They say “If you torture numbers enough, they will confess to almost anything”
      Unfortunately that article only tells about the price of stock market and not the value part (PE). In 1992, market went passed 40 PE multiple and it took 10-12 years for sensex to come in line with reasonable PE multiples of 15-16. (you can check the last graph in this post) So now we are at level playing field and to say that in last 5 years, markets have not given return and in last 20 years, it has given lesser return is just a number (thanks to Harshad Mehta – what he did in 1992).
      If you notice PE in last chart in 2007 when sensex touched 21000 it was 25 (forward PE – I hope we are not going to argue on type of PE) but in 2010 when it again kissed 21000 it was 20 so if economy keeps growing & markets don’t perform – valuation in future become even more attractive. Same thing happened in 2003-04.

      • Dear Hemanth,

        Thank you for your reply. To be honest I can only understand the upshot of it. Stock investing is anathema to me. I rely on people like Mr. Jain to make my money for me. I have significant equity component in my folio but I am not comfortable about it. You have made me feel a little better thank you.
        One thing though long terms equities demonstrate magic of compounding but it is the magic of erratic compounding. Last year the sensex annual return was ~ -20% my funds returned ~ -5%
        Now how many -5% years will my portfolio and goal need tolerate? I am sure they will be bolstered by a few +20% years but would it be enough? That is the question. Unfortunately we have only past performance to take comfort in. Thanks again.

  6. Hi,
    I had looked at US (dow) stock market growth over last 80 years and I had seen that it is roughly equal to real GDP growth plus Inflation. Same was the case with Japan, Brazil and UK stock market growth rates. Note that Brazil had hyper inflation also in between. So, although I had this data, somehow I was not able to understand why stock market growth is linked to inflation. Can we say that higher inflation is good for economy?? I don’t think so. Can we say that sensex will grow 50% year-on-year if inflation is 50% ??? We have already seen that higher inflation has lowered sensex. Then why does on a longer term stock market grow with inflation ??

    • very good observation……that means it beats fd returns but we should treat mutual fund/ equity as our pension fund….!

  7. Hello

    If someone can help me

    I am planning to buy Max Newyork Flexi fortune plan ..with 5 year pay term and tenure of 10 yrs?

    Is it a good investment ? Also the other plan that i am considering in shiksha plus 2 from max newyourk

    please share your opinion about it.

  8. Hi Hemant,

    The above strategy looks good……….buying when the markets are low and selling when they are high. But I think it is very difficult to predict this market. Looking at its volatility and many a times now we see a downfall in markets..economic markets are affected……I do not see any hopes that the market would ever turn better now………Gold has already reached its peak……..I sometimes feel markets can crash for ever………..May be I am sounding pessimistic. But can this happen?

    • Hi Megha,
      Nobody here is talking about “buying when the markets are low and selling when they are high” – its about does it make any sense to invest in equities if market looks gloomy.
      “I sometimes feel markets can crash for ever” in long term markets are slaves of earning but if someone is too pessimistic about economy – no one can help.

  9. hi Hemant,
    Gr8 article…just encourages us to go on with our SIP’s… Its always said tht when near a particular goal, de-risking of the portfolio shd be done, i.e. shiting from equity to debt. Hw exactly this is done?? Shd we shift to a debt fund ?? Or a Bank FD??

  10. Thanks for this great article Hemantji, and for taking to the report by Mr.Prashant Jain. Loved reading, guys like you are doing a terrific job in controlling emotion and look forward.

  11. Nice Article.Very True
    Just yesterday a patient of mine adviced me to hold my all funds & invest in equity in dec’2012 as market will be around 8000.
    No need to say,he was hypertensive. 🙂

  12. Hi Hemant,

    Nice extrapolation and guidance. I hope it gives guidelines to the investors like me who are in nascent stage of investing.


  13. Hey Hemant,
    Thanks for the article. Its very useful and encouraging, especially when you’ve asked me to learn while playing the game 🙂

    I have decided to invest through SIP and I have chosen HDFC Balanced Fund for this. Please also suggest a fund for investement in equity, would like to put Rs. 1000 monthly through SIP.


    • Hi Nishi
      For first time investor HDFC Balanced fund is fine. You can also invest in ICICI Prudential Focused Bluechip Equity.

      • Thank you so much Anil ji.
        I want to invest for a minimum 15 years as this investment is being done purposefully to achieve a financial goal and I am sure considering the term these funds will prove to be beneficial.

        I feel blessed to have some wise people around, and am trying to spread this blessing by talking about this blog to my family and friends 🙂

        Those who understand and learn will surely be happy in future 🙂

  14. Hi Nishi,

    If you have long term goal of more than 5 years, go ahead with equity diversified funds like HDFC Equity or Blackrock equity (not balanced funds). If you are trying to minimize the risk (or) if it is for shorter term, you can go for HDFC Balanced fund or HDFC prudence fund.


    • Thanks for your wise advise Playboy 🙂
      Yes I wish to invest for more than 15 years keeping in mind my future goals. I wish to minimize the risk but one equity fund should be there in my financial assets (specially when it is for long term investement), All thanks to Hemant for giving knowledge to decide so.

  15. “People buy when prices are high, buy more when higher and even more when even higher”. The lessons that I learnt after browsing through this portal for months now.

    1. Stop watching CNBC . The “experts” keep something about the oppurtunity here and there, something about the moving average, something about good time for entry. I had enough of that when i lost lot of money in the ‘oppurtunities’.

    2. Stop tracking the economy everyday. I feel stupid having tried to become a seasoned trader watching lots of such news

    3. Pick ‘Good MFs’. Stick with SIP and look at it once or twice a year.

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