The Power of Absolutes
While having the most infamous bun maska and chai at a café, my friend and I got into an interesting conversation. She was telling me how her real estate investment has performed over the years. By the way, she’s also an avid investor in financial markets.
She said, “I’ve invested around 50 lakhs in an apartment which might now sell for around 1.07 Cr.” She was really excited about the deal. I asked her, “Why are you so happy about the gain?” She said, “Well, in about 10 years or so, the value has doubled—that’s a good bargain, right?”
I asked her what the CAGR was. She replied, “Isn’t that something we only look at in stock or mutual fund portfolios?”
Throughout our lives, we’ve heard our parents, peers, and elders talk about real estate with statements like, “This is what I invested, and this is what I got.” And over time, our minds have been wired to think of real estate in absolutes.
But when it comes to stock or mutual fund portfolios, we throw in all the jargons—XIRR, CAGR—and suddenly, a return of 11–12% starts feeling just… average.
So, what do you think the CAGR of that real estate investment was?
It’s 8%—and that’s pre-tax (we’ll discuss this part later).
Let’s put the big words aside for a second.
Let me ask you a question:
What’s the biggest factor that contributes to any investment growing or doubling at a certain rate of return? (Think about it.)
Tadaaa…!!! The answer is — “Holding period”
The unsung hero of investing.
Bruce Flatt (often called the Warren Buffet of Canada) shared a beautiful formula:
Average return × Moderate holding period = Outstanding returns
We invest in Gold and Real Estate, hold them close to our hearts, and never let them go.
But when it comes to financial investments, we don’t form the same emotional bond. We let them go—just like that—within a short span.
The average holding period of equities in India is around 2.5 years.
If we can’t nurture something for a longer period of time, how can we expect it to grow at an exceptional rate?
Don’t let recency bias blind you into thinking markets are either magical or a gamble.
Stay put. Invest.
“Build wealth for every passion.”
Because if done in a disciplined way, financial assets provide three things:
Stability. Growth. Freedom.
So, don’t let the absolute power over you.
Show some love to compounding—it can be an eternal relationship, if done right
our love ( some call it obsession 🙂 ) with holding periods and compounding is a really old one. Do read couple of earlier blogs on the same
‘Time is the only arbitrage in Investing today’
Disclaimer: Any calculation shown in this post is only for illustrative purposes and based on prevailing tax laws and the past performance of a fund or investment is not an indicator of it’s future performance. The data used in this presentation has been taken from several sources. Neither BuckSpeak nor any of its employees vouches for the authenticity of the data. Investing in mutual fund comes with market risk. Please read all Scheme Information Documents (SID) /Key Information Memorandum (KIM) and addendums issued thereto from time to time information and other related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund. Investment should be done in consultant with a financial planner/consultant, who would recommend products aligned to your needs and risk profile. There are no guaranteed returns. Neither BUCKSPEAK NOR ITS EMPLOYEES, makes any warranties or representations, express or implied, on products offered and would be responsible for any losses from these investments. The company earns commission from Asset Management Companies when the user buys mutual funds. However, the recommendations on funds is not influenced by the commission earned
