Nowadays if you go to any beach in Mumbai or Mira-Virar and look at the horizon you can't really see deep into the sea. There is usually a haze due to air pollution that blocks the deep view of the horizon.
Well, a similar problem is present when you look at the data on stock market indices usually boomed to investors by the media, social media, broker reports, analyst reports etc.
The deep view is blocked. Mosts charts only show 1-year returns and over the last few years only.
But investors need to look beyond 15+ years of data and also focus on longer-duration returns to get a proper perspective of how different diversified indices have moved over the long term and weigh the current short-term sentiments with that.
This is the best way for the investor to not be swayed by immediate sentiments in the market which in any case emanate from short term or even ultra short term movements in stocks and indices.
I did some long-term number crunching on Nifty 100, Nifty Midcap 150, and Nifty Smallcap 250 indices. And, surprise surprise!
I calculated their 5-year rolling return on every day from April 1, 2010 to mid-February 2024 and then annualized it. The rolling annualized 5-year returns on a daily basis for the long 14-year period threw up pretty interesting stuff.
Each of the three indices have charted their own trajectory and diverged from each other multiple times in the long period (see chart below).
And, if you average the rolling daily annualized 5-year returns for the entire nearly 14-year period from April 2010 to mid-Februay 2024, the results are fascinating:
-- 13.5% return by Nifty Smallcap 250
-- 17.5% return by Nifty Midcap 150
-- 13% return by Nifty 100
The largest and the smallest companies in the stock market have delivered identical returns over the long term.
Beech wale (not beach wale!) companies have given higher returns. Jo stocks na upar na niche capitalisation ke the (meaning na ghar ke nag hat ke!) they ended up doing better!
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