Some food for thought
"Ask the young. They know everything. "
—Joseph Joubert (French Writer, 1754-1824)
Word for the day
Blossom (v)
to flourish; develop
First thought this morning
Recently, results for Xth and XIIth
standard examination for 2018-19 academic session were announced. Many students
scored 99% or more marks. Two students even scored 100% in aggregate. Students
scored 99 or 100 marks in subjects like political science, history, economics,
literature, psychology, etc. Our ministers and other politicians have
congratulated the "toppers". Many celebrities (including politicians)
have posted marks scored by their wards on social media.
I have written it many times before also (see here). To
me so many students scoring near perfect score in political science, history
and literature means that system encourages only those students who are
conformist. The examiners are trained to punish the students who like to differ
and offer alternate views on history and political issues, even at 12th
standard level. This cannot be a good sign for a progressive society.
More than one lac students scored over 90% marks in XIIth
standard, which means, it will very tough for the students scoring less than
90% marks to get admission in a decent college.
My niece scored 97.25% in Commerce stream. She is feeling
totally frustrated and delusional since there is little chance she will get
admission in college or course of her choice. The family is dismayed and no one
is celebrating. You can imagine the pressure on the children who are preparing
for examination next year and their families. With such a state of mind, how do
we expect children to take forward the glorious tradition of seeking knowledge.
After all objective of education cannot be to end up behind desk
of a bank, after completing the strenuous trek through IIT and IIM!
Chart of the day
Still lot of space for active investors
Continuing from yesterday (See here)
In my personal view, passive investment in benchmark indices in
India may not be advisable for non institutional investors, for the following
simple reasons.
(a) Nifty is still an
evolving index. Unlike the primary benchmark indices in developed countries,
Nifty undergoes significant amount of changes every year. So much so that since
beginning more than 80% of the index constituents have been changed. So many
frequent changes in benchmark increase the cost and tracking error for the
passive investors. For S&P500, For the past 51 years, the average number of
component changes has been 23 per year or under 5%.
(b) About 50% of
Nifty constituents have Beta materially more than 1. The rest have beta
materially lower than 1. This large skew in Beta makes performance of various Nifty
constituents very asymmetrical in all market conditions.
(c) Very large
proportion of trades in Nifty constituents are speculative in nature. About
2/3rd of the constituents see average delivery volume of less than 50%, with
1/4th seeing less than 30% traded quantity resulting in delivery. This raises
the chances of sharp moves in Nifty and unpredictable volatility.
(d) Last but not the
least, the performance of broader markets has been better than Nifty over 5, 10
and 15yr horizon.
Not only point to point, in the interim period also, for most of
the period, broader markets have outperformed Nifty.
This also corroborates the hypothesis that Nifty is evolving
index and many mid and small cap are still rising significantly to join the top
club. The chances of making better returns are materially higher in mid and small
cap arena. The caveat however is that the rate of casualty is certainly higher
in broader markets, but then it is not much less in Nifty. JPA, Suzlon, ADAG
group, PSU Banks, MTNL etc being some cases in point over past 2 decades.
