Why are stock market 'experts' reluctant to accept uncertainty?

Share price trajectories offer no certainty but many people have an incentive not to admit as much

- VIVEK KAUL

In my interactions with so-called stock market experts over the years, I have often been told that since April 1979, the BSE Sensex—India's most popular stock market index—has delivered a return of 17-18% per year.

Now, the idea behind such statements is primarily to establish that investing in stocks earns a superior rate of return in comparison with other asset classes. From April 1979 to October 2024, the Sensex has given a return of 15.2% per year. Add a dividend yield of 1-1.5%, and we are looking at a rate of return of slightly less than 17% per year, largely in line with what the stock market experts talk about.

Of course, it can be argued that the Sensex fell sharply in October and hence the returns are slightly lower. From April 1979 to 26 September 2024, when the Sensex peaked, the annual return worked out to around 15.5% per year. With a dividend yield of 1.5%, we arrive at a return of 17% per year.

There are two major problems with this argument. First, it does not tell us that a bulk of these returns were made before 1992, when most of us investing in the stock market right now were either not around or were not old enough to be buying stocks.

So, how do things look if we adjust for this deficiency? We need to consider the returns delivered by the NSE 500 Total Returns Index (TRI), which takes the dividend yields of stocks into account while calculating returns. Also, this index is much broader than the Sensex and is thus a better representation of the stock market.