Starting to appreciate consistent performance

The following graph shows 3 year rolling returns of 3 different mutual fund schemes. (I have removed the fund names from the graph since the names of specific funds are not needed for this post.)

Rolling return graph taken from primeinvestor.in

The green and purple funds had sharp declines in March 2020 when the market had just reacted to the Covid-19 shock. The blue fund also fell, but not by as much. The reverse of this fall can be seen in March 2023. Any investor that invested in these funds in March 2020 got a significantly higher return than anyone invested right before or right after.

When I was new to evaluating investment assets, the peaks that the green and purple lines reach used to attract me. I liked such funds. “There is a chance of making an incredible return from these funds,” I’d tell myself.  Investing in funds like the blue line felt like leaving some returns on the table. I wanted to invest in assets that have the potential to maximise returns.

But high volatility can be hard to live with. When investing in a fund that provides fairly consistent returns, entry and exit times do not matter as much. A volatile fund can leave us less than satisfied depending on our entry/exit time.

Let’s say a fund’s NAV goes up from ₹100 to ₹130 within 4 months, and then falls to ₹121 in the next month. I’d find it hard to sell my holdings when the price is ₹121 despite knowing that anchoring to ₹130 is irrational. I’d delay exiting the fund as much as possible in the hope that the NAV may rise back up. Of course, the NAV can keep dropping below ₹121 as I wait. But that knowledge hasn’t been enough to gather the conviction necessary to sell at ₹121.

Over time, I have started appreciating consistent performance over potentially high—but uncertain—performance. I think the following reasons triggered a change of mind in me.

• Reading various articles on portfoliocharts.com and looking at the various charts that they plot to compare different portfolios.
• My experience selling the RSU shares that I receive from my employer. Working with volatile assets can be emotionally taxing.

There’s another angle to this, too. I used to think that investors avoided risk only when they were afraid of it. But now I know better. I avoid certain risky assets or risky portfolio mixes not because I fear the potential loss. Rather, I don’t particularly want the added return, so I am happy to keep both the extra risk and return outside my portfolio.

Uncertainty = discomfort of the mind

I went to see a doctor today. I was only expecting a simple treatment. After all, the symptoms didn’t seem severe. It seemed like something that could be cured in a few days.

Then came the diagnosis as a shock. It was a condition I’ll have to live with forever. Something that can change my life as I have known it. Something that can potentially disrupt what I consider as my identity. Something that can make me humble.

It hasn’t been easy since then.

A part of me keeps reminding me of what Oscar Wilde once said: “If I may not write beautiful books, I may at least read beautiful books; and what joy can be greater?” Though this will be a life-altering change, I have great confidence that my happiness will remain intact.

Nevertheless, it’s all a haze right now. Things will become clearer and more certain in the coming weeks and months. For now, however, this uncertainty hasn’t been easy to endure.

How diversification increases risk

Trump’s remittance tax is spooking many around the world. Some Indian residents investing in US assets are also worried if their withdrawals may also fall in this tax net.

A while back, I wrote that diversification doesn’t strictly reduce portfolio risk. This remittance tax is an acute example of how holding assets in the US exposes us to more risk.

Just to be clear, this post is not about global diversification or US assets. The only point I am trying to convey in this post is that diversification does not strictly reduce risk; it alters the portfolio’s risk-reward behaviour.

The impact of the recent enthusiasm in gold ETFs

I have invested in 2 gold ETFs: Quantum Gold and SBI Gold. Every month, I download the fact sheets of all the funds I invest in to monitor how my money is being invested. As I was checking May 2025 fact sheets, I noticed something interesting.

Gold ETFs have appreciated more than physical gold in recent months. This is bizarre since gold ETFs are expected to always underperform physical gold because ETF returns are physical gold return minus expenses.

I looked up the trailing returns of these ETFs on Value Research Online. To make sure this isn’t special to these 2 ETFs, I also looked up India’s most popular gold ETF, Gold BEES.

Trailing period	Physical gold	Gold BEES ETF	Quantum Gold ETF	SBI Gold ETF
1 month	4.50%	4.85%	4.92%	4.86%
3 months	12.86%	13.80%	13.81%	13.83%
6 months	24.20%	27.67%	26.96%	27.71%
1 year	35.72%	36.54%	36.72%	36.68%
3 years	23.92%	22.90%	22.94%	22.92%
5 years	15.37%	14.50%	14.53%	14.63%

This table reveals something new to me: gold ETFs have run ahead of physical gold in the past year. Gold ETFs have been in so much demand that they are running ahead of physical gold’s price appreciation! But this has only been happening in the recent year+. The numbers for 3 and 5 years (and beyond) are as one would expect.

What does this mean for investors?

• If you need to trim your gold allocation, now is a good time; you’ll be able to sell at a price higher than the fair price.
• Now is probably a wrong time to buy gold ETFs. Eventually the market will sober up and ETF returns will fall in line with gold price return minus ETF expenses. That means we can expect gold ETFs to underperform physical gold in the coming months/years. (Of course, no one can tell when the shift will start to happen.)

Caution: Please don’t take this—or anything I write—as financial advice. I myself don’t act on most of my observations. For me, this is merely a fun intellectual exercise.

Life isn’t the final draft

Came across a beautiful video and this observation from the video struck a chord:

Life isn’t the final draft. It’s just breakfast over and over. You burn some. You get better.