Performance= Potential – Interference

HI

We all know the yester year’s super tennis star Martina Navratilova. She has many grand slams to her credit. She has titles from Singles, mixed doubles and women’s doubles and defied nature and played even after crossing 40 years of age. This statement about Performance = Potential – interference is attributed to her.

Read that transcript below.

Martina Navratilova was once asked, “How do you maintain your focus, physique and sharp game even at the age of 43?”

She gave a humble reply, “The ball doesn’t know how old I am”. You need to stop yourself from stopping yourself.

Every game in life is actually played on a 6-inch ground – the space between your two ears. We don’t live in bungalows, duplexes, or flats. We live in our mind which is an unlimited area. Life is great when things are sorted and uncluttered there. Keeping the mind messy with hatred growing on the table, regrets piling up in the corner, expectations boiling in the kitchen, secrets stuffed under the carpet, and worries littered everywhere ruin this real home.

The key factor to performing well in life and in every arena is the ability to control the quality and quantity of your “internal dialogue”.

Performance is potential minus internal interference. Live in peace, not in pieces.

Investment and Investor.

An investment is an opportunity to invest and make your investment grow. There are many ways one can invest and accordingly choose different asset classes. It can be Gold, Real estate, shares, Mutual funds and of course fixed deposits.

While fixed deposits generally give a linear returns they are not volatile. All other asset classes are volatile and returns will not be linear. But over long periods they can give exponential returns. That is the potential non fixed deposits investments offer us.

We need to understand how they have performed. Also how an investor has seen his investment perform. Let us understand Mutual funds which are reasonably well diversified and managed by professionals. Let us understand how some of them have performed.

Reliance growth fund.

This fund is 25 years old and has given a return of over 20% CAGR. Rupees 1 lac invested is now 1.16 crores.

That has been the potential of this fund. But the question is how many lived up to this fund’s potential.

While the fund has given over 20% in the longterm, in the short term it has been volatile. See the 2 year return is just 1.56% and 3 year is 2.79% This is far below the potential.

This leads to interference.

See the 3 year rolling return of this fund.

• The maximum returns in any three year period was 102% and the minimum was -15.8%
• Depending on when you invest, you may get positive or negative return.
• 9% of the times the investment has given negative returns.
• Even the quantum of positive return could vary.
• However if you had left the investment without meddling it, it would have given more than 20% in a 25 year term.
• But very few investos would have remained that long.
• They keep redeeming and reinvesting again with different intervals.
• This they do depending on their perception of the market and based on fear & Greed.
• These interference with the investment ‘s potential to earn good returns.

Remember What Martina Said, Performance is Potential – Intereference.

This is not the only fund. There are many fund which have given great returns The following funds, apart from other funds, have also given decent returns over a 25 year period.

• Franklin Prima fund has given a CAGR of 18.18% over 25 years
• Aditya Birla hybrid 95 fund has also give over 18% CAGR in 25 years time.
• HDFC Equity fund has given over 17% returns in a similar time frame.

How many stayed that long? What did the investors do when the markets crashed in the last 25 years, Be it the Asian Financial crisis, or Global crisis in 2008 or even the recent covid 19 fall.

What does a normal investor do?

• Investors chase returns. So they keep churning their portfolio. Hop from one fund to another better performing fund. Out of the best performing funds only 13% continue to remain that way in the next few years. So chasing and hopping never stops.
• This is not only in Mutual funds. Even in direct equity. Here the churn will be high and also the concentrated risk is higher.
• We do not do this in Real estate or Gold. We prefer to wait and Mostly we just dont sell.

Investor return = Investment return – Churn ratio

Churn ratio is factor of fund performance, impatience, peer pressure & market conditions for a given period.

The higher the churn, the higher the interference and hence lower the returns.

You can also get the same return as the investment over a long period of time if you

• Stay Calm
• Stay Invested
• Stay without interfering or churning the portfolio

Whenever you are worried and you want to churn your portfolio, do remember Martina Navratilova

Happy investing.

VS Varadharajan

ckar.vsv@gmail.com