Testing on historical data across stocks in Sensex, Nifty, dow, FTSE has proved the following:
1)Most stocks (about 70%) underperform the Index during the course of their lifetime.
2) A small subset produces all of the markets total gains.
This is because losses cannot be greater than -100% but returns can be far greater than +100%.
Every investor in the market feels he can outperform the market. Please analyse your portfolio and see the overall CAGR (compounded annual growth rate) from the time you FIRST started investing till date. You will be very lucky if it is more than 7-8%. It is probably better to put money in a FD. or switch to momentum based trading if you fancy 50% plus a year.
Friday, June 5, 2009
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