There is an inherent tendency to do something about an external event. But you know that quite possibly nothing pretty much changes in the long term because of that event. So when nothing changes in the long term, what is our best course of action to that external event? I strongly believe in the power of doing nothing. No action is sometimes the best action 🙂 Of course I am talking about election times and the urge to change our long term investments on its basis.
Can you look at the below Nifty returns and state with confidence what caused the uptrend and what caused the downtrend? I have purposely masked the years in question, so as to not help you identify the years in which elections occurred. From this graph, I was able to call out with reasonable certainty the Covid Dip and the 2008 crash of world markets.
I found that the elections results on their own did NOT contribute much to the long term market movements. And hence dears the power of doing nothing is so important (on your long term investments). This is almost the same as the patience being a superpower we talk about frequently.
The CAGR of Nifty50 during this period is 14%. If we just use the power of doing nothing and all we did was continue doing what we did before, the result is below.
Wait, market falls 4-5%, we do nothing about it? Thats definitely not logical, right? For this, its good to look at one’s portfolio from having a Core and a Satellite component. The Core is your solid base contributing to your key goals. You know this will come back strongly and these “noise events” would not affect much. The core portfolio is your strategic allocation portfolio. Your satellite portfolio is your Tactical asset allocation portfolio. Here you make changes to make profits from these events.
Conclusion
Make changes to your Satellite (Tactical) portfolio for external events, which would not affect too much in the long run. Make your core portfolio stable, and make only changes from a strategic perspective. The power of doing nothing is to let compounding grow your investment.
