Best Strategy for Long Term Investing | Money Psychology
Summary
TLDRThe script presents a conversation about investment strategies, focusing on the concept of timing the market versus consistent investing. A person resigns from their job, hoping to make massive profits by buying during market dips. However, they are challenged with examples comparing the returns of a perfect market timer, the worst market timer, and someone who invests consistently via SIP (Systematic Investment Plan). Ultimately, the stress-free and reliable strategy of SIP investing is highlighted as the best approach for long-term returns, while timing the market is portrayed as unpredictable and risky.
Takeaways
- 💼 Investing requires patience and consistency rather than trying to time the market perfectly.
- 💡 The concept of buying during market dips is difficult to execute consistently, even for experts.
- 📉 Even the worst market timer can still achieve significant returns over the long term, despite investing at the highest points before market crashes.
- 📈 SIP (Systematic Investment Plan) is a stress-free and reliable way to invest in the stock market over time, yielding consistent returns.
- 🔍 Equity markets rise in the long run, and holding investments over a long period of time is a key factor in wealth accumulation.
- 💪 The idea of achieving 1000x returns by buying dips is unrealistic and often a misconception.
- 📊 Regular investment, regardless of market conditions, tends to yield comparable or better results than trying to time the market.
- 🗓️ There is no perfect time to start investing; the best time to start a SIP is always 'yesterday,' or as soon as possible.
- 🧠 Emotional discipline and a long-term perspective are crucial during market downturns to avoid panic selling.
- 💼 Diversifying between equity, debt, and maintaining an emergency fund is essential for a balanced financial strategy.
Q & A
Question 1: Why does the employee in the script want to resign?
-The employee wants to resign because their career goals are no longer aligning, and they believe the investment strategies they are following are limiting their potential.
Question 2: What is the employee's plan to achieve 1000x returns?
-The employee plans to withdraw funds from various investments like F&F, ESOPs, and mutual funds, and then invest them when the market dips, believing that timing the market will give them 1000x returns.
Question 3: How does the boss react to the employee's plan to time the market?
-The boss dismisses the idea, explaining that it is not possible to consistently time the market and that such an approach won't yield the desired 1000x returns.
Question 4: What are the three scenarios discussed to compare market timing and investment strategies?
-The three scenarios are: 1) The best market timer who buys just before the market reverses, 2) The worst market timer who always buys at the peak, and 3) A person who invests consistently through SIP (Systematic Investment Plan) every month.
Question 5: What is the outcome for the best market timer over 15-16 years?
-The best market timer, who buys at the lowest dips, turns 5 lakh rupees into 25 lakh rupees over 15-16 years.
Question 6: What is the outcome for the worst market timer who buys at the highest points?
-The worst market timer, who always buys at the highest points before crashes, still manages to turn 5 lakh rupees into 14 lakh rupees over 15-16 years.
Question 7: What is the outcome for someone who invests consistently via SIP?
-The person who invests consistently via SIP, putting in Rs. 2500 every month for 15-16 years, ends up with around 17 lakh rupees.
Question 8: What is the key takeaway from the comparison between market timing and SIP investing?
-The key takeaway is that while the best market timer makes slightly more money, the difference is not drastic. SIP investing is stress-free and still yields good returns over the long term, proving to be a reliable and less risky approach.
Question 9: Why does the boss emphasize that the equity market rises over time?
-The boss emphasizes that equity markets tend to rise over a long period of time, so investors can make money without trying to time the market perfectly, simply by holding their investments for the long term.
Question 10: What is the best time to start a SIP, according to the conversation?
-The best time to start a SIP is 'yesterday,' meaning as soon as possible. The boss highlights that there is no perfect time to start investing, and the key is to start early and stay consistent.
Outlines
🧐 Resignation and Unrealistic Investment Expectations
This paragraph covers a dramatic dialogue between an employee and his boss, where the employee decides to resign because his career goals no longer align with the company's financial strategies. The employee criticizes the boss’s investment advice and expresses frustration over his inability to achieve the returns he desires, specifically a 1000x return through market timing. He explains a misguided plan to time the market by investing in dips, expecting massive gains. The boss tries to explain that timing the market is not feasible and cautions against such strategies, introducing three examples to prove his point.
📊 Understanding Market Timing and Investment Scenarios
This paragraph delves into three hypothetical scenarios for market investment: the perfect market timer who buys right before a market reversal, the worst market timer who invests at the highest point before crashes, and the investor who simply follows a systematic investment plan (SIP). Through a chart of Sensex dips, it’s shown that even the worst-case scenario investor still makes significant returns over time. This demonstrates that attempting to time the market perfectly is not necessary for long-term wealth creation, as the market tends to rise over long periods.
Mindmap
Keywords
💡Market Timing
💡SIP (Systematic Investment Plan)
💡Dip
💡1000X Returns
💡Equity Markets
💡Mutual Funds
💡Emergency Fund
💡Buy on Dips
💡Warren Buffett
💡Stress-Free Investing
Highlights
Employee resigns due to dissatisfaction with career alignment and investment strategy.
Employee criticizes boss's 'ten minutes index fund plan' for being insufficient to achieve 1000x returns.
The employee expresses a desire to 'buy the dip' and achieve 1000x returns by timing the market.
Boss presents three investment scenarios: perfect market timer, worst market timer, and consistent SIP (Systematic Investment Plan).
Perfect market timer scenario results in 25 lakh rupees from an initial investment of 5 lakh by buying at the lowest lows.
Worst market timer still achieves 14 lakh rupees after investing at the market's highest highs before crashes.
SIP investor, who regularly invests Rs. 2500 each month, ends up with 17 lakh rupees over 15-16 years.
The difference between the best market timer and worst market timer is only 80% over the long term.
Boss emphasizes that long-term equity markets tend to rise, and doing 'nothing' or consistent investing is effective.
Warren Buffett's passive approach to investing is highlighted as a model for making money without constant action.
The idea that 'you cannot time the market' is stressed, and SIPs are encouraged as a stress-free investment method.
Employee continues to believe that buying the dip is the best strategy, despite evidence showing only moderate benefits.
Boss explains that the best time to start investing in SIPs is 'yesterday' or 'today'—there is no perfect time.
When presented with 2020 crash headlines, the employee learns about the importance of having an emergency fund and diversifying investments.
The conclusion emphasizes long-term planning, maintaining emergency funds, and consistent investing over trying to time the market.
Transcripts
Sir, may I come in?
No.
Okay.
Thank you.
Not right now. I'm busy.
Please.
Sir, I am resigning.
What?
I am resigning, sir.
Why?
Sir, my career goals are not aligning anymore.
What career goals?
I help you in every single thing that you do.
You help me, sir?
Just because of you, I am only an average investor.
your ten minutes index fund plan is not going to make me a millionaire.
I want to make a 1000X returns.
And how will you do this?
I will withdraw my F&F.
I will withdraw my ESOPs.
I will withdraw my mutual funds.
And I will put it in dips.
What is dips?
Simple.
The market falls.
I put my money here.
The market rise again.
And then it falls again.
And I put my money again.
And the market rises again.
Oh my God.
250x, 250x, 250x, 250x, 1000x returns.
I am a millionaire.
Dude.
This is not how it works.
You cannot really time the market.
Actually, you know what?
What's wrong?
So you are the best market timer?
Yes!
As soon as the market is reversing you will?
Put all my money.
Because you know the best time.
The future?
Correct.
Okay.
Let's understand this with three examples.
Number one, the guy who is the best market timer in the world.
That means the person who is able to buy just before the market reverses.
The 2008 crash was here and before the reverse, you're able to buy it right at the low.
If this person invested for the last 15-16 years, what would his return be?
This is scenario one.
Then there is scenario two.
There is the opposite of him.
The worst market timer.
Basically you.
As soon as you invest, the market crashes.
The worst case scenario happens consistently for 15 years.
If someone invests like this, what will his return be?
And the third is the person who doesn't know whether the market will go up or down.
He just sips.
It means he invests every single month.
Now we'll just compare these three.
The person who bought the Dip, will win.
So why don't you tell me what you think is going to be?
Is it going to be 1000x v/s everyone else?
Let's find out.
So to understand this, let me show you a chart.
Okay.
It's a really simple chart.
Can I have it Akshat?
Super.
This is the beautiful chart of Sensex.
It starts from 86, goes all the way to 2024.
What's the one thing you notice over here?
Dip.
Dip.
Dip.
No.
The markets went up.
Sorry.
Yes.
No. Also dip duty.
Correct.
So we've marked all the dips over here and the reasons for the dips.
So very recently we have the coronavirus pandemic.
Then we have the global market sell off.
There was a global financial crisis.
Stock market sell off, etc.
Now over here, every time you basically bought the dip is what we are trying to calculate.
Correct.
That is what I will do.
Because in your genius mind and sometimes your genius mind you think if I can catch the dip,
I can earn, how much X?
More than a 1000x.
Let's calculate this.
So basically what we are going to do is throughout all these years every time the market dipped
I am going to find out the lowest low of that dip and invest one lakh rupees.
Oh that's an example.
And let's see.
One lakh rupees.
One lakh rupees we will invest in the
dips & by 2024 how much money we would have?
Fair?
Look at this chart over here.
This has all the dips you see.
Just before the market reversed we invested every penny at the lowest low of that crash.
Is there a perfect entry case like that?
Yes, possible! You are Superman.
Me?
No.
So we will basically find out what this five lakh becomes.
Can you guess what it will become?
Five crores.
No, it will be 25 lakh rupees.
Round of applause for this buy on dipmaster.
Now let's do the opposite.
Which is?
Re-invested at the height as soon as we invested the market fell down.
And this person is so unlucky.
So unlucky.
Every time he invested the market reversed from there.
And he always invested the highest high possible.
If this has ever happened to you, as soon as you invested, the market fell down,
how much money do you think this poor guy will have?
There goes the answer
Poor guy.
The five lakh rupees actually becomes 14 lakh rupees despite him investing right at the top,
the highest high before the crash.
Now think about this.
The guy out buying on dips which is impossible to buy right at the lowest low makes that 5 lakhs into 25.
But the guy who invests right before the fall still makes 14 lakhs.
So the difference is only about 80%.
So that's not that much of a difference
How did this happen, sir?
This happens because you think investing is complicated and you have to do a bunch of things to make all that money.
But the truth is equity markets rise over a long period of time.
You really have to do nothing to make money.
This is Warren Buffetts calendar by the way.
How would I know? I didn't check his no.
Check out this graphic.
It's nothing there
Look at his calendar.
Where is the calendar?
Exactly.
He has nothing for weeks and weeks.
Yet he makes a lot of money passively.
You can actually make money by doing very less by just holding on for a really long period of time.
But looks like it's very tough that's why you need a channel like Zero1.
Anyway let's move on to the third scenario.
The SIPs?
Yes.
Now in this case we don't know when the market will fall.
We don't know when the market will go up.
Which is actually true.
No one does.
I've been investing since 2007.
I don't know when this would happen.
In fact when the coronavirus pandemic happened I told all my friends market will fall another 20% and it reversed.
Crap.
Anyway we all make mistakes.
So what if we invest it every single month for 15-16 years?
Whether the market is going up, it's going down.
And how much is the Sip?
Should be atleast Rs.10,000?
Probably!
What I'll do is I'll pick a smaller number.
Rs 2500.
Okay.
With no step up?
No step up.
Just Rs. 2500 every month.
What will this guy make?
Do you want me to calculate?
Guess, dude
Rs. 2500, 16 years.
About 17 lakh rupees.
Now tell me.
The guy who was buying on dips.
This person doesn't exist.
Hypothetically made 25 lakh rupees.
Then the guy investing when the market was at its top, his capital became about 14 lakh rupees.
And the guy who's doing the SIP got to about 17 lakhs.
Which do you think is the stress free way to approach investing?
Stress free is sip but more money will still I would still bet on the buy on dips.
Two questions for you and you.
Which is the most stress free way out of all of this?
SIPs.
Second question.
Did the buy on dips earn 1000x?
That was a joke.
It would be lower.
No.
Joke?
So many episodes done & you don't get anything.
But sir I have one question.
Okay I know this.
A lot of new investors don't.
When is the best time to start your SIP?
Yesterday.
Today is the right time to do it.
Because there is no best time.
There is no right time.
If the market crashed you'd still earn a return over a long period of time.
So who cares?
So idea is just do sips.
Yeah!
Alright, sir it's perfect.
I got it!
So basically whenever the market will fall, I'll not be afraid.
Are you sure?
Yes.
Laptop please.
Now what I am going to do is let's go back to 2020.
When the lockdown happened & the market crashed.
So what we'll do is I will read the news headlines from 2020 crash
and this is the time you have to imagine that you have to invest your sip.
Okay.
Okay the first is Covid-19 Sensex Post's biggest quarterly fall.
Nifty's worst fall in 28 years.
Stock market posts worst losses in history Sensex crashes over 3500 points.
What did you learn from this?
You should plan your finances in such a way that your emergency fund is long.
You have extra money & some has been invested in debt.
All your money is not in equities.
You can't do that.
That's very risky.
Basically, you have to keep your emergency fund on the top and put your money in different assets.
Tell me what you understood.
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