How to do magic

Getting great equity returns sustainably only looks like magic, it actually isn't

- Dhirendra Kumar

Given the performance of the Indian stock markets over the last few decades, no one should have lost any money. It’s true. The markets are up 1.7 times over the last five years, 3.6 times over 10 years, 4.6 times over 15 years, 16 times over 20 years and 22 times over 25 years.

On the face of it, one would think that with such a high-performing market, all that an investor needs to do is just be in the market and stick to some basic rules like avoiding obvious duds and diversifying. That’s all that is needed to generate wealth. Even though this is fundamentally true, most investors stumble somewhere or the other. Many, perhaps most, get diverted to speculation and short-term trading under the influence of their brokers or now, by the general short-termist atmosphere on markets-related social media. Others don’t pay attention to basic research and diversification. At some point pretty soon, they make big losses and then either withdraw from investing or change course. 

I believe one of the fundamental reasons why so many people have trouble investing in the stock markets is that they have severely flawed mental models of what determines a stock price.