Equities Don't Outperform All Asset Classes All The Time
This section discusses the argument that equities do not always outperform all asset classes, a painful truth that market participants refuse to discuss because they refuse to understand that returns from equities are non-linear and come in bunches that are sometimes too abrupt. As a result, it is perfectly normal for a broad investment portfolio to underperform other asset classes for up to twenty-five years. This argument is supported by examples and data from both the Indian and US markets.
The author gives an instance of the period of 1992 to 2003 where the benchmark index gave less return than the bank fixed deposit which gave a return of 12% at that time. He mentions that during the tremendous rise in the Sensex during 2003 to 2008, there were times when the Indian equity market underperformed gold.
In such a case, the concept of index investing is rendered obsolete, and the only way to generate returns is to hold a small number of stocks like TTK Prestige, Page Industries, Gruh Finance & Hawkins Cooker which rallied 10 to 35 times at that time and, more importantly, to avoid staying in sync with the broad index.
Index Investing -Indexes in India are market cap weighted rather than price weighted, as they are in the United States. Which means the Indian index gives more weight to few stocks. But same thing is happening in US market too, for eg: - FAANG (FAANG refers to five prominent American technology companies: Facebook; Amazon; Apple; Netflix; and Google (Alphabet))