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Why Investors Failed to Make Money in Last Decade

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"You only have to do a very few things right in your life so long as you don't do too many things wrong" - Warren Buffett

History offers references and provides basis for creating theories to help decision making in future when facing similar conditions. So does the stock market history. Analysis of stock market movements considering various parameters – fundamental or technical, provides basis to create investment theories to help analysts & investors reasonably estimate the future and take investment decisions.

The mistake we generally make, we dive deep into history for seeking references and tend to ignore recent past, it’s events and movements. The most asked question with respect to investing into stock market is about its valuation and if this is the right time to invest now or I should wait for some time.

To check if the markets are fairly valued or otherwise, analysts use various parameters like market cap to GDP ratio or price to earnings ratio (P/E) or price to book value (P/BV) or dividend yield and few more. The most commonly used parameter on standalone basis and understood by even common man, is market PE.

Based on over 100 years of stock market history especially of developed markets, markets trading at PE of 20 or below are considered to be fairly valued and above it is usually considered as overvalued, heated, costly etc. If the market PE rises above 25 it is considered highly overpriced and sometime it is regarded to be in bubble zone.

As discussed many times before that we are living in a highly dynamic and constantly changing age. And while studying history to take cues for the future, we generally ignore recent history. Things are changing very fast and so should be our parameters.

Whether the current markets are in overpriced zone and waiting for bubble to burst or if they are reasonably priced, we considered recent history of Indian markets of last decade represented by Nifty 50. Remember 10 years also, is no small period to analyze and draw inferences. Following are the month wise PE levels of Nifty - the most prominent Indian index


Of the last 120 months only for 7 months nifty traded below 20 that is only 6% of the times. Or we can say based on traditional theories, 94% of the times Nifty remained in overvalued zone. Consider a situation an investor following traditional wisdom, would have stayed away from stock markets all through this period. Just imagine how much opportunity s/he would have lost of making money from there.

When we further dived into this data, we found 55% or for 66 months nifty PE remained between 20 & 25 and for 32% or for 38 months it traded at PE ranging between 25 & 30. And if we consider yearly closing PE then nifty has never traded at PE below 20 since 2014 or over last whole decade. Current PE for nifty is 22.81.

So we can see that we need to rework our theories and the levels of new normal for market PE. It can now be reasonably assumed that markets are not overpriced but are still within comfort zone as long as they are trading below 25-26 PE. A reason for this is – world’s best performing economy and big domestic money chasing stock markets.

Equity AUM of mutual fund industry alone is more than Rupees 20 lakh crores. SIPs alone contribute more than 17,000 crores every month now. And that is the reason that despite 2.5 lakhs crores withdrawal by FIIs between October 2021 and March 2023, didn’t make much impact on Indian stock markets.

In our last article “Confused or Convinced”, we gave many fundamental reasons to be bullish on Indian markets. And this though small but enough technical analysis, should comfort you to be bullish on the Indian stock markets. So plan your investments wisely, not to miss the father of all bull markets that is in the offing.

And never forget two golden rules of investing which are (a) always follow your asset allocation and (b) never run out of cash. And a word of caution – corona has started raising its head again. Though world has moved much past corona, still we can’t rule out its threat not only on humanity but on economics also.

Call your InvestmentMitra to review your portfolio and take necessary action, if any. You may also drop an email to info@investmentmitra.com for your queries or whatsapp on 9958447700.

Thank you.

Happy Investing!

Team InvestmentMitra

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