Markets across the globe continued to rally. Nifty hit a new all-time high. But these high returns are not being reflected in investor's portfolios.
It is because this rally in Nifty and Sensex has been the narrowest rally ever. Barely 5% of the listed stocks are at all-time highs. To compare, when the indices made a new high last year as many as 18% of the listed stocks made a new high. Almost 40% of the BSE AllCap constituents are 20-50% away from their high. Only 14% of the large-caps, 6% of mid-caps and 4% of small-caps are at an all time high.
This is the reason that investors see a marked difference between their portfolio returns and Nifty and Sensex performance. Immense opportunity exists in value funds and good quality mid & small-cap companies as they will catch up with their large-cap peers over a period.
It is important that investors stick to their investment plans for at least 3-5 years.
Recent research has shown that investors who look at their portfolio once a year see a gain 91% of the time while investors who look at their portfolio every day see gains only 51.5% of the time.
The reason is that a longer-term horizon dramatically reduces the volatility in the portfolio while allowing the returns to compound. Therefore, investors are well advised to look at their equity portfolios as long-term compounding machines rather than short-term beauty contests.