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  • Writer's pictureTeam Stellar

How patience and consistency rewards the investors in the equity investment

Updated: Jun 3, 2023

One of the greatest and most difficult qualities that we commonly see in most of the successful investors including Warren Buffet is having “patience”. In Buffett’s words, the stock market is a device for transferring money from the impatient to the patient. In this world of instant gratification and quick money, many underestimate the power of patience, time and compounding. Albert Einstein once called the power of compounding as the 8th wonder of the world.

Another important virtue of successful investors is consistency/persistence. It is a well known fact that economies / markets move in cycles. It is futile and hard to predict the market direction and cycles. But, if you keep investing through the many cycles of the markets regularly in a systematic fashion, you have the benefit of removing human emotion from the investment process, which is often the biggest obstacle to performance. you also get the benefit of dollar cost averaging when you keep investing irrespective of the market condition.

Let’s look at some data to understand how these two qualities help investors in generating wealth.For this purpose, I have chosen the HDFC Flexi cap data, the reason being it is one of the oldest funds with more than 20 years of history. Let’s look at the returns of the fund over the last 20 years if you had invested Rs 1 lakh at the beginning of every year.That is, you invest on every January first from 01/01/2003 to 01/01/2022. The following table show the transactions and the portfolio value at the beginning of each year.

As you can see from the able table, it is not an easy ride. There were periods when the portfolio doubled in a single year (2003) and almost lost 50% in a single year ( 2008). There were four years in which the portfolio lost value compared to previous year and there were 4 years where it barely returned 7% compared to previous year. Yet, if the investor was patient and invested consistently throughout this period, it has managed to deliver a stellar long term return of 17.43% with the total value of 1.6 crore on an invested value of 20 lakh. If investors were impatient and redeemed too soon or stopped investing through the downturn, they wouldn’t won't be able to catch the subsequent good years where the fund bounced back and gave positive returns.

Charles Munger says,

“The first rule of compounding is to never interrupt it unnecessarily.”

It is important to remember that equity markets are bound to have ups and downs. It doesn’t work like a fixed deposit where you get a fixed return at the end of every year. We can’t expect the equity fund returns in a similar fashion to fixed return products. Below chart shows the returns of the above portfolio over the last 20 years compared to hypothetical unreal portfolio which returns 17.43% CAGR year after year which will never happen in equity investment.

Chart 1: Equity Mutual Fund: Reality Vs Expected

If you can ignore the short term volatility, and invest consistently throughout your goal period then equity mutual funds are for you. It is also important that you have the right asset, right asset allocation and proper diversification across multiple asset classes based on your risk appetite.


Along with right asset allocation, one can generate great wealth if invested consistently and have patience to wait until the magic of compounding takes place. Just remember that, sometimes, when it comes to investing, often, the best thing to do is nothing. Keep investing and stay put until your goal is reached.


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