“You say it best when you say nothing at all” is a touching and very romantic line from an Alison Krauss hit song. This is in line with the finest advise we have received from investment Gurus. “Time in the market is more important than timing the market” they tell us. And they are right. In investments too we do it best when we pick the right investments and then do nothing at all, allowing for compounding. Is there a catch in this? But if I follow the same long-term investment strategy that the big boss of Berkshire Hathaway, Mr Warren “one of the richest investors in the world” Buffet follows, why is my net worth akin to a tracking error, being a tiny decimal of his wealth?
Buffet and his ilk have grown rich while letting the grass grow under their feet because their lawn grew a bit better than mine. Good seed and soil would explain this. What is put into the mixture, or possibly what is not added may tell us more.
A Morgan Housel article (I am a huge fan) a couple of years ago pointed out that the investment returns generated by Berkshire Hathaway and big portfolio managers were actually not widely different before charges of fees and commissions. Over time the compounding of these charges left the other’s performance so far behind that their panting, huffing and puffing still left them out of the screen. Such is the difference made by the compounding effect of just a small bit of the total returns – compounding returns that could have been earned by the fee differential alone!
So it is with our investments in the fixed income universe, except that the difference is more stark! The difference between 2 instruments of the same institution, say bonds versus fixed deposits of the same bank can be even 50% more than of the returns of the latter. This also applies to the different maturities of a corporate bond.
Salt, by quantity, is only a minuscule part of a recipe. Leaving it out can simply make the most delectable meal insipid and worthless. In compounding, a single basis point can make the difference between a ho-hum return and heart-thumping, drooling return. Check out some math –
[1.00]365 = 1
[1.01]365 = 37.7
Picking our options carefully can show us the power of Einstein’s Eight Wonder – compounding!
We provide a bouquet of products that suit the range of risk sensitivity. Risk-return mapping will help identify the most appropriate product for investment.
