Realistic Long Term Return Expectations and Motivations

Hello friends,

This is my first post here. I am from an Engineering background (15 years Work Ex) and am venturing into financial/investing domain for the first time in a serious & committed manner. Before this I had been investing in Mutual Funds and even stocks based on surface knowledge/analysis & a bit of borrowed conviction. I had achieved 16% CAGR on my Mutual Funds from 2006 to 2011/12 and decided to take the plunge into direct stock investing in 2012. With my Engg Design background & having read a couple of introductory investing books, I thought I was ready.

My highly dumbed down strategy was to do a surface level financial analysis ( Ala Phil Town ) on the shortlisted small cap companies, do a balance sheet sanity check , the prevailing sectoral conditions & the position of the company WRT the sector followed by a rudimentary valuation check. Call it beginners luck or the extremely cheap markets that time, I managed to achieve a CAGR of 30-35% from Aug 2012 to Jan 2018. This phase was dizzying and in 2016 and 2017, I pushed in further capital (rest of the savings I had) . As luck (and my Imprudence) would have it, my capital concentration was much larger towards the latter part of the bull run.

Then 2018-2019 happened , and whatever the market had given was duly & gradually taken back. My Portfolio fell by 50% during this period. Some of companies I had invested in had been shady all along (but I hadn’t cared to dig deeper) and got decimated during this period. COVID further exacerbated the situation by additionally separating the wheat from the Chaff. Having been fully invested, I had no funds to exploit the 2020 situation and hence had churn and wait it out. As a result, My portfolio now is at the same level as it was in Jan 2018 thus giving my 10 year XIRR returns at around 14%.

There are too many hard lessons I have learnt in this 10 year period and joining this forum is an attempt to take course correction (albeit quite late). Having taken a break from work recently , I though this was a good time to finally go below the surface and try and explore a discipline which appears quite esoteric and non deterministic (which puts a technical background person like me really out of the comfort zone)

There were a few queries I wanted to pose to the members here to better understand their approach, expectations and motivations:

  • What are the Realistic Returns expectations of members (Not novices like me but members who have applied themselves & gone through the hard learning curve over time) in the Long term (at least one full market cycle), especially given the fact that well managed Mutual Funds have given stellar returns over the long term (For Ex Franklin Prima has given 24% CAGR in last 20 years … and a few well managed Small Cap funds continue to give 20%+ returns over a 10 year period).

  • What are the actual returns achieved by the members (if they can disclose) over the long term ?

  • Also, What motivates people here to commit a significant portion of their productive time in pursuing a discipline so vast and non deterministic? Is it just the quest of knowledge? Is it the intellectual satisfaction of having unraveled/understood and accurately predicted the journey of a company and the subsequent recognition of its worth by the markets ? Is it the sense of involvement one gets from participating, in a meaningful way, in the India Growth story ? Or, is it the returns one is able to generate on their path to financial independence ?

  • If the motivation is only the returns one generates, then would all that effort (& the accompanying emotional rollercoaster ride) warrant an additional 5% return ? Here I am assuming that achieving more than 23-25% CAGR is quite challenging in the long term across market cycles.

  • Also how challenging was it and how much time did it take members with non-financial background to reach a mature stage of self confidence and conviction, with an established personal framework in place, where one is able to select and stick to a selected company without the need for external validation/approval ?

  • I would assume that people from engineering/technical backgrounds would have found the quantitative side of equity research more in tune with their psyche, but how did you develop the temperament and skill to develop the qualitative research aspect of your toolbox ?

Would love to hear the thought of both experienced and relatively new members on these queries.

  • Rahul

I have seen members mentioning about a certain return expectation, but I don’t remember or know of any member who actually stopped at that. I may have read a comment like - ‘made 20% CAGR in FY or CY’ but I have never read a comment like - ‘made my target of 20% CAGR in 6 months, so I am cashing out and will not invest for the remaining time’.

As this is direct equity, there is a churn, which is inevitable, excluding for the people who have highly concentrated PFs, who perhaps know more about the company as much as the owners, along with the obvious conviction, experience, that they have.

As they say investing is long term trading, many members get in and out of stocks frequently, although there are long term investors in many companies for years too. All these members make good returns, but I am not sure if they think of such returns as their goal and are working towards the goal.

These are active investors, educated or experienced folk, good investors to begin with and get better and more better. So I guess, a % is not what they are looking for. Of course, there are members who mention that too, but these are relatively less in number. So even if they had such an expectation at the beginning, but as time passes, they go beyond that.

In essence, a % of return, financial independence etc., are not what many are looking for, not explicitly at least and disclose that YoY. Of course, there may have been members who had such plans and achieved financial independence and became inactive, I don’t know.

So, to look at direct equity from the point of view of MFs, in a sense should not happen, because you could amass wealth that you did not even dream of through a few stocks if they turn out to be multibaggers over many years, which does not happen with MFs, as they are limited w.r.t return. Hypothetically speaking, if a company will stand the tests of time and will be in existence 50 years from now, who wouldn’t want to invest in such a company (I am not going into the many drawdowns, long periods of bad performance, breaking all support levels etc). My limit point is, we cannot compare MFs and stocks on all the aspects.

And the days of many funds giving 20% CAGR are gone, I would settle for actively managed or passive funds, if I can get 15% over the long term, not possible, things have changed. It is becoming increasingly difficult to beat the indices.

As far as the motivation part, direct equity is an intellectual pursuit too for people from non business backgrounds. Investors who own businesses, or are from business families, they don’t find this a pursuit at all, it is just business to them, literally. Like a person who is in awe of a drawing, for the artist, it is just work with a bit of imagination.

For an engineer, for example, to be able to build or create, and to be able to asses the impact that particular product is going to bring to the company, from a financial standpoint, are different things. To look at the same thing as an engineer and as a marketer are completely different. And one has to be inclined to whichever degree possible, in order to dedicate himself, if one wants that. Artists have muses, without that push, that drive, one can only go so far.

Selection of stocks using quantitative methods may very well work, but a stock is not a representation of numbers and data, it is also a company, which is run by people, which goes through phases, which changes, more so in current times, not to mention the euphoria or wrath that surround the market, the emotional part.

If one considers this as a journey, there is a long way to go, the path changes, the walk changes, the destination changes, with experience the walk gets easier and better, if burden is felt, the walk may slow down etc etc.

Lastly, these are all personal, to each his own. And there are many ways to skin the cat. One who is as mechanical as they come, can make money. One who does not look at return ratios, valuations but understands the business, can make money. VP has members of different schools of thought, they have different strategies, different styles of investing, go through them and I am sure you would find something appealing.

Hope you find my reply coherent.

Welcome to VP.


IMHO, CAGR computations is really a fallacy to compare and get the FOMO feeling. When the multi-asset-matrix comes out that has all asset types in it, I feel FOMO. When the multi-country-matrix comes out, I feel FOMO. When my return is not good as the top 5 MFs or top 5 ETFs, I feel the FOMO even more. So, what is the answer then?

  1. If you are the type to compare, then divide your assets and put it in that category.
  2. If you are the type to compare to Indices, then put it in the Index ETF or SIP into it.
  3. If you are the type to not compare, then do what brings you most satisfaction, and casually look up those other Relative Comparison Returns, and then adjust back to #1 or #2.

I have done this successfully after many years of this struggle, and I am very happy with my diversified approach of #1, and #2 and #3!

Keeping it short and sweet to your question about what is the “Realistic LT Return Expectations and Motivation”. Hope I have been direct in answering it with some real options to consider.



@ChaitanyaC , Thanks for your thoughtful response . Apologies for the delay in responding.

I didn’t mean a strict return target in mind from the beginning , but a generic ballpark expectation of returns over a long period of time (especially for individuals whose aspiration for financial independence is one of the primary motivators for their individual effort in equity research)

I am aware that its the process that counts and the returns are a consequence of an established, repeatable and disciplined process in addition to other factors not in ones control. However, am sure that for a person doing this in a dedicated manner for half a decade or more uses some kind of a yardstick for course correction, and a good part of that yardstick has to be whether the Market agreed with him/her in the long term. In other words, over a long period of time, the proof of the pudding has to be in the eating.
As far as comparison with MF is concerned (In terms of expected ballpark returns achieved over a long period of time), it becomes inevitable for someone for whom this is not wholly an intellectual pursuit but also an endeavour to enhance his/her financial condition over the long term.

As far as facts go, the top 2-3 Small Cap Funds have indeed achieved a 20-24% CAGR over both the past 5 yrs and 10 Years respectively. However, reason dictates that a knowledgeable, skilful and disciplined individual investor with stable temperament can beat these returns over a full market cycle. But I would assume that it would take a certain amount of time (possibly half a decade at least ? ) and dedicated effort to reach that level of expertise.

Having said that I am aware that individual investing can be quite a fulfilling and enriching experience in itself (sans the general aim of expected returns) when one focusses on the process and letting the results take care of themselves.

@kkpatel1924 , its not necessarily about the feeling of FOMO (although that emotion does consume us mortals from time to time). Its about being sensible and prudent on how to achieve ones financial goals.

We all have limited productive lives (maybe 2-3 decades ….or more if one is really manages to maintain ones mental and physical fitness) , and expending a decade of that in lost opportunity ( As I have been guilty of ) is not wise as far as achieving those financial goals is concerned).

I have been through some posts in the forum on how some members are happy achieving 12-14% CAGR over a long period of time, despite investing a lot of effort and time. I also recall having seen a response from a senior esteemed member @Donald mentioning that this aspiration needs to be much higher.

I have also observed some very experienced members mentioning having achieved 25% over a period greater than 2 decades, which comes across as quite a good return (Although the massive bull run from 2003-2007 did provide lot of tailwinds for investors active during that period).

However, I do realize that there are no guarantees for an individual who is just starting out in a committed way to become a truly independent investor. Its quite possible that a few years down the line, I may realize that I have just hit the valley of despair (Dunning-Kruger Effect) .

The only solution to this conundrum I believe is not to totally rely on this path for achievement of financial goals (at least not for the initial few years), but to learn and enjoy the process as an intellectual pursuit and meanwhile let your finances compound in a Small Cap MF vehicle at 15-20% . Then, after a few years , maybe when one gets confidence is ones abilities ( not a false sense of confidence, but a deep & quiet sense of assuredness) that Small Cap MF can consistent be beaten by 5% or more over the LT , then one can deploy substantial amounts of ones capital directly.

Most of the members in VP, I think are beyond CAGR, and as they all have processes and styles, their CAGR may be in the vicinity of 20-25%.

What I think is, MFs are best suited for financial goals, FI is one. Having an asset allocation, evaluating the PF YoY, adding more to equity when markets fall, or reducing equity depending upon the situation, moving the gains to debt when markets are high etc.

So if one is thinking of financial goals, FI included, then the target corpus has to be met in the stipulated time. This should happen irrespective of the CAGR, in the sense that, even if the CAGR is non linear, which it will be, the destination of a corpus should be reached without fail. So the focus should be on the corpus and the time, and not on the CAGR, returns. If the markets are rising, and if the PF has reached the desired corpus, one should at least reduce the position to the extent of the corpus and not stay invested because the markets are at ATH.

Stocks is a different ballgame, although in the same court, with the same players. As Buffett says, bears also make money, even in a bear or sideways market, some stocks perform well, some styles perform well, relative to the market. And even if the stocks in the PF don’t perform well, not always we can come out of them, owning to different reasons. A stock can have intermittent underperformance, with no materialistic negative change in the business or in the management, and the market does not punish it. So to come out of such stocks is tough, more so, if the allocation has grown much over years. Yes, people exit from their entire position, if they think the valuations, sales, profits or margins are unsustainable etc, or if they find a better opportunity.

So IMO, to align a direct equity PF is tough, because of the emotional biases. Not everyone may want to sell for any reason, and the more inertia, the more sway from the target corpus. But if it is a MF, the management will take the decision.

And the time and effort put in are worth more than a number. As direct equity sometimes gets mundane and tedious, I guess there should be something non numerical that drives, and something non numerical that should be derived, intellectual, psychological or philosophical, along with the returns. Otherwise going about it for years is tough. Even without such an aspect, we can be unemotional, unbiased, automatic despite being human, but it is tough. Takes years I guess.

Investors who take technofunda bets are perhaps the best ones to provide with such a CAGR, because they enter with both fundamental and technical knowledge, stay and exit at appropriate times, relatively very quickly to the long term investors in the same stocks, sell at their stop losses, because they are other trades lined up etc.

And as these all are personal aspects of finance, one should know what he wants, if he wants a number or something beyond that, and if he wants something beyond, then he should acknowledge and accept the adverse outcomes too, both financial and psychological.

So if one is unsure, or doubtful if his direct equity venture may or may not succeed like he envisaged, he can maintain both a MF PF, active or passive, and a stock PF.

P.S I have not experienced everything I have said. I am yet to be taught many lessons by the market.

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Investors, it is all about passion. I mentioned three approaches as a result, and do not trust any of them. Each of them have pitfalls and hence you will see a period where one wins and another does not.
Life teaches you over time that there is no single road to success, and if you are doing your best, and are the type who does not want to take a chance on a single track method, then keep all three trains in motion.
I have done that with Asset Allocation, Strategy Diversification, Not counting returns scientifically (to feel depressed about one of those), and also going into areas that are not commonly practiced.
My latest venture is into Private REITS that I am evaluating, and do not want to write more since it is off the main topic, but I will take a small allocation, try it out, and if it works, it will be one new allocation for me with a 3-5 year hold.
Figure what makes Rahul ‘tick’ in the long term and do what your heart and mind says…

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