Thursday, December 26, 2013

Is it possible to do better than Warren Buffet

A very happy New Year to all readers and their families!

Enterprising Investor gives Mr Buffet's annual returns as 19% in excess of the treasury bill rate.

Forbes says " Since taking control of Berkshire 40 years ago, has delivered compound annual return of 22%."

Assuming that the treasury bill rate has been about 3% per annum, the two estimates are more or less comparable.

Let us then take as benchmark, an annualized return of 19% above the interest rate. Given the rate is 9% in India, a return of 28% annualized should take the investor / trader in the category of the best investors of the world!

What do readers say?

Most traders have significantly higher expectations from their trading and investing activities. But, 28% compounded annually can become a large amount soon enough. We must remember that returns are not linear. This means, returns are not 28% per annum, year after year. There will be losing years, some years when the investor gets 50% and some years when the average return comes in.

If you start with Rs 10 lakhs (Rs 1 million) and earn 28% compounded, after 20 years you end up with Rs 13,83,79,657. Okay, this is almost Rs 14 crores, or Rs 140 million.

What should be our New Year resolution: aim for 28% or scale down our expectations to 28%?

8 comments:

cdmoorthy said...

Dear Sukhani ji

We are missing an important factor - that is rupee depreciation.

It means if he gets 20% return in terms of USD then we need to find out technically, does it equal to 28% return in Indian Rupee terms.

I feel it is important While bench marking WB's ROI, we need to set-aright base currency.

Regards

Raj said...

" Happy New Year " yo you and your family and entire team.

Manish.T said...

Sirji, what about tax??!!

Rajat said...

Sir,

A Very Happy New Year to you and your Family too, As in my Trading I aim for beating Fixed Deposit Return only so anything 9% above along with cost recovery is enough, should I aim for more and increase my expectation from 9% to 28% or shall I carry on with the approach that all I need to do is beat the FD Returns, post Tax.

Srini said...

One key thing I have realized is, while calculating returns with high variability, Geometric mean gives true picture. While a normal average (arithmetic mean) takes a -50% return in its stride, and gives a higher overall return, Arithmetic mean is significantly lesser. So protecting against extremely bad years / long tail events is paramount if we have to grow wealth in a sustainable manner.

amit parik said...

Thanks A lot Sir, Actually it is more important to have target before you start you journey..thanks a lot again sir ..will try to reach the same with your guidance.

Rajesh Alawadhi said...

Dear Sir,
Kindly solve one mystery for me as far as returns from the markets are concerned.
1.If i traded 1000 shares of xyz stock in say 1993(20 years back) and made 1 rs then i made 1000 rs total(which was a huge sum that time).

2. In 2013,i do the same trade and make 1000 rs but it is nothing.

3. Sir does it mean that trading is a losing game over a period of time.The skill used by me becomes less and less valuable over a period of time? How do i beat it?

4. As far investing is concerned,if i buy say 20-30 stocks and even if one manages to become Infy or reliance,what about the rest which sooner than later be reduced to dust.
The example cited by you is about magic of compounding.Instead of playing a game of buy and hold,why should i not concentrate on magic of compounding.A good trader with 10 lac capital,10000 trading hours experience and 40-50% returns should be able to beat all investment returns.

Raju Anowarul said...

If the interest rate we are accepting 28% p.a we should also consider inflation rate which is 6-7 % so we should also deduct the same moreover IIR and CGAR also should be considered.