Black Dot and wealth creation.

This story has a simple , yet important message. Sometimes its the simple stories that make us ponder the most…One day a trainer entered training hall  and asked his participants to prepare for a surprise test. They all waited anxiously at their desk for the exam to begin.The trainer handed out the exams with the text facing down, as usual. Once he had handed them all out, he asked the participants to turn over the paper.

To everyones surprise, there were no questions- just a black dot in the center of the sheet of paper.The trainer seeing the expression on everyones faces, told them the following: I want you to write about what you see there’ the participants, confused , got started on the inexplicable task.

At the end of the session, trainer took all the papers, and started reading each one of them out loud, in front of all the participants. All of them with no exception defined the black dot, trying to explain its position in the center of the sheet.

After all had been read, the hall is silent, the trainer started to explain:

‘Im not going to grade you on this, i just wanted to give you something to think about. No one wrote about the white part of the paper. Everyone wrote about the black dot – and the same happens in our lives. We have a white piece of paper to observe and enjoy,but we always focus on the dark spots.

In personal finance, we experience the ‘dark spot phenomenon’ all the time. We love statistics and look at periods (let’s say a specific 5 years period) when SIP in a fund or the index had produced a negative or zero returns. We use such specific data to bolster a general argument against investing in equity markets.

This to me is a dark spot phenomena. Instead of looking at every other period where the investor had made good returns: much like the large expanse of white paper, we look at that one period when returns failed to show up; the lone dark spot. One episode catches our attention but the majority occurrences continue to elude us.

Understand your aspiration and time period available to achieve the goal and monitor your SIP returns once in 6 months. Just ignore other noises such as market may correct,US employment data poor,few banks in Europe may collapse.

SIP in several of large cap and midcap funds over 10 year period have delivered 14 per cent to 20 per cent compounded returns and too tax free.

For any doubt feel free to write to suresh@myassetsconsolidation.com or info@myassetsconsolidation.com