Let me share two graphs, which appear quite similar
Are they from the same data but drawn differently? Both graphs show periods of growth followed by consolidation or pullback
Let me zoom out and show the source of this data
The first graph is that of our model portfolio and second is of Vinati organics. One is a portfolio of stocks and another is a portfolio of products. Our portfolio has delivered 24% CAGR in the last 10 years and Vinati organics delivered 40% CAGR over the same period.
There is a deeper lesson in the above charts
Progress is never linear. It happens in fits and starts with periods of stagnation and backtracking.
Short-term thinking and extrapolation
It is easy to enter the portfolio (or a stock) at point A and just extrapolate that trend or at point B and do the same. The problem with this mindset is that the individuals expect progress to be linear and steady (purple line) whereas reality is the brown line of our portfolio
This is a problem no one can solve for us. I have seen this all my life, especially with investing. A lot of investors want immediate gratification and jump in at point A, only to be disappointed.
The right mindset is to zoom out and look at the long term trajectory. Does the mindset and approach of the advisor make sense and will it work over the long run. Is yes, then you must give it time to play out
What drives this behavior ?
I think the problem is our own expectations and lack of patience. We want immediate and consistent results. That’s the point of tweet below
The world is not kind to give something for free. If you want zero volatility – go for a fixed deposit. If you want high returns, the price you pay is the volatility of the returns.
Somehow everyone gets this in other facets of life – everything of value has a price. Patience and persistence is the key to success – in stock markets and a lot of other endeavors
