Is there any strategy to beat Nifty index? Yes, there is. We call it IDIOT’s strategy.
Index buying is the go to strategy that beats actively managed funds. Warren Buffet won 1 million dollars by betting against a Hedge Fund Manager. He said S&P500 index will beat Actively managed hedge funds on a 10 year time scale. And yes, super smart guys post net fees and charges couldn’t beat S&P500
We already knew a simple stat from our research at moneydhan.com.
Nifty makes a new high every 3 years
Now we got curious to see what happens when someone buys top 3 nifty stocks on January 1st. Holds on it for ever. You do this purchase every 1st January with top 3 nifty stocks.
Can this 3 stocks portfolio beat Nifty?
Answer was Yes and No.
A 2008 top 3 stock portfolio has under-performed Nifty CAGR. Likewise with 2009 January top 3 stocks.
Check the data for yourself.
2008 January till 2020 August
An ” I Do Investment One Time ” IDIOT guy bought
- Bharti Airtel
As on august 1st year 2020, ONGC and Bharti Airtel turned out to be an disaster. Reliance saved the day. The portfolio ended up making 3.63% cagr.
CAGR is known as Compound Annual Growth Rate (CAGR) is a measure of the average yearly growth of your investments over a certain time period. It tells you the average rate of return you have earned on your investments every year.
Nifty gave 5% while portfolio gave 3.63%. While before year 2020, this portfolio was almost 0% CAGR. You know just 1 year rally in reliance ( recent one) was enough to cover the gap. Probably we will attribute this to Luck this time.
Look at this weight-age power that reliance holds upon nifty.
Nifty needed 47 other stocks to generate a mere 1.4% alpha CAGR w.r.t the 3.63% of portfolio.
That is not convincing enough to me.