Expectation vs Reality of any investment

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whenever a new asset/stock is introduced to you what is the first question you ask ? “how much was the return last year?” next question. “how much was the return in last 3 years?”.

📊 We tend to think that what happened will continue happening in coming years and that is were we make mistake in evaluating which asset class or stock to invest into.

🌎 𝗥𝗲𝗺𝗲𝗺𝗯𝗲𝗿 𝗗𝗼𝘁 𝗖𝗼𝗺 𝗕𝘂𝗯𝗯𝗹𝗲 ? from year 1995 till 1999 , US market Gained as much as 817% with Annualized return on investment was over 55%. Every new investors believed this will continue and money kept pouring, till it burst. Year 2000 – 2005 it all ended and market fell -56% with annualized return of -15%. Check out chart below :

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💣 𝗛𝗼𝘂𝘀𝗶𝗻𝗴 𝗺𝗮𝗿𝗸𝗲𝘁 𝗖𝗼𝗹𝗹𝗮𝗽𝘀𝗲 : Between year 2002-2006 Home prices in US rose 126% with annualized return of 17% . but later it fell 50% in next 5 years period. Similar stories can be found in Commodity market : my dad’s favorite “𝗚𝗼𝗹𝗱 “. Gold Returned 192% gain between 2006 and 2011 . which all came crashing the next cycle of 5 years with drop of 28% . Now we are in upcycle again and gold is reaching all time high !

Gold Return from year 2006
Gold Return from year 2006

⏲️𝗖𝘂𝗿𝗿𝗲𝗻𝘁 𝗚𝗿𝗼𝘄𝘁𝗵 𝗦𝘁𝗼𝗰𝗸 𝗖𝗿𝗮𝘀𝗵 . if you check the returns of ARKK vs SARK ( ARK ETF vs Short ARK ETF ) you could see ARK ETFs have done really good between year 2016 till the peak in Jan 2021. Returning 785% , Yes this is not a typo it is 785% in just 5 years ! This fund was most popular in year 2020. And this all came to the same end as everything else and it has declined more than 60% . while its Short ETF is up at similar percentage.

📰 𝗦𝗼 𝘄𝗵𝗮𝘁 𝗮𝗿𝗲 𝘁𝗵𝗲 𝟮 𝗰𝗲𝗻𝘁𝘀 𝗳𝗿𝗼𝗺 𝘁𝗵𝗲𝘀𝗲 𝘀𝗰𝗮𝗿𝘆 𝘀𝘁𝗼𝗿𝗶𝗲𝘀 ?

1) Yes, it is useful to check historical data but it never ever guarantees the future performance . if you really want to keep that umbrella drinks on your hand you need to stay with the cycle and sector rotation.

2) Are you in the early phase of the cycle or it’s too late, This could be hard to find but it is safer to be early in the game then in last. my long term investors won’t like it but if you cant wait for years in that case its better to move with cycles.