{"id":2053181,"date":"2016-09-05T11:07:49","date_gmt":"2016-09-05T05:37:49","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2053181"},"modified":"2016-09-05T11:07:49","modified_gmt":"2016-09-05T05:37:49","slug":"pain-proportional-frequency-observations","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2016\/09\/05\/pain-proportional-frequency-observations\/","title":{"rendered":"Pain is proportional to Frequency of Observations"},"content":{"rendered":"

Midcaps, proxied by the NIFTY MID100 FREE index, have given an annualized return of over 18% from 2001 through August-2016. That is a 12x return over 15 years. Sounds good when you say it that way, doesn’t it? Take a look at how Rs. 1 has grown over the years:<\/p>\n

\"cumulative.returns.NIFTY<\/p>\n

Now, zoom into the bottom-most chart – the drawdown chart:<\/p>\n

\"drawdown.p2p.NIFTY<\/p>\n

The point-to-point drawdown chart is horrific enough. Investors saw a 70% loss during the Global Financial Crisis (GFC) in 2008\/09. 30% drawdowns occur with regular frequency. Investors make it worse by looking at their investments too often. <\/p>\n

For example, if an investor saw the returns of his portfolio once every 1000 days (4-5 years,) he would not have seen more than 35 drawdowns during the period. Move the observation to every 200 days (about a year,) and the number ticks up to 138. The more you check your portfolio, more the number of losses that you see:<\/p>\n

\"drawdowns.NIFTY<\/p>\n

New investors have rightfully taken the SIP route to saving in equities. However, they would be doing themselves a disservice if they expect a fixed-deposit like consistency in equity returns.<\/p>\n

For the quant inclined, code for this analysis can be found on Github<\/a>.<\/p>\n

Related: Definition: Drawdown<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Midcaps, proxied by the NIFTY MID100 FREE index, have given an annualized return of over 18% from 2001 through August-2016. That is a 12x return over 15 years. Sounds good when you say it that way, doesn’t it? Take a look at how Rs. 1 has grown over the years: Now, zoom into the bottom-most … <\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471,9],"tags":[960],"class_list":["post-2053181","post","type-post","status-publish","format-standard","hentry","category-investing-insight","category-your-money","tag-returns","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2053181","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2053181"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2053181\/revisions"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2053181"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2053181"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2053181"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}