Psychology to stay invested during peaks
In your blogs, you often mention that one has to stay invested during peaks and resist the temptation to book profits. I personally find it very difficult. Whenever I see a 15-20% profit, I can’t resist the urge to book profit. Can you please enlighten what goes on in your mind and how one can stay invested over decades?
What you’re feeling is natural.
A visible 15–20% gain, and your brain wants to “lock it in.” Your mind prefers the safety of a sure profit today – which also sounds logical, right?
How do I stay invested for the long term?
I also focus on 15-20% gains, but the difference is that my focus is not on absolute return but on CAGR. My goal is to earn 15-20% return per annum, year after year.
What is the difference between a 18% absolute gain and 18% CAGR returns?
Suppose you have invested Rs. 1 lakh in a mutual fund.
- Appreciated Amount (Absolute Gain): 100,000 x (1+18%) = 1,18,000 – what you get is 1.18x.
- Appreciated Amount (5 Year CAGR): 100,000 x (1+18%)^(5) = 2,29,000 – what you get here is is 2.3x
Now, the next logical question is this: “Is 18% CAGR possible from stocks, or is it just a myth?”
Long-term holding of quality stocks (or pure equity funds) for the long term can fetch you 18% returns.
Psychologically, I’m completely focused on maximizing my CAGR returns. To do it, one main requirement is to hold my stocks for a very long time.
It works, I can vouch for it. But there are two conditions:
- Buy only quality companies.
- Buy them at the right price, and then go on holding them for 7-10 years.
