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IDIOT strategy to beat Nifty Index

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How with no knowledge, no research and just 10 minutes in market, beat NIFTY over long term.

Index buying is the go to strategy that beats actively managed funds. Warren Buffet won 1 million dollars by betting against a Hedge Fund Manager. He said S&P500 index will beat Actively managed hedge funds on a 10 year time scale. And yes, super smart guys post net fees and charges couldn’t beat S&P500.

By end of this article you will realize how a simple IDIOT strategy can beat the best in the business with least efforts and close to no research in stock market. You will look at your advisor, fund manager and Mutual funds with a fresh perspective. Actually you might fire them for being incompetent and time suckers. Understand, Include and Make this IDIOT strategy as your benchmark, to test and compare other performances. so we begin…..

We already knew a simple stat from our research at moneydhan.com.

Nifty makes a new high every 3 years

Now we got curious to see what happens when someone buys top 3 nifty stocks on January 1st. Holds on it for ever. Simple steps are:-

  1. You buy top 3 stocks in Nifty50 index on every 1st January.
  2. Invest 1 Lakh each into every stock- Equal allocation. Thus 3 lakhs invested.
  3. Forget it unless you need it post few decades.

Can this 3 stocks portfolio beat Nifty?

Answer was Yes and No. 
In  2008, 2009, 2015 top 3 stock portfolio has under-performed Nifty CAGR. 

Check the data for yourself.

 

2008 January till 2020 August

An “ I Do Investment One Time ” IDIOT guy bought

  1. Reliance
  2. ONGC
  3. Bharti Airtel

As on august 1st year 2020, ONGC and Bharti Airtel turned out to be an disaster. Reliance saved the day. The portfolio ended up making 3.63% cagr.

Compound Annual Growth Rate (CAGR) is a measure of the average yearly growth of your investments over a certain time period. It tells you the average rate of return you have earned on your investments every year.

Nifty gave 5% while portfolio gave 3.63%. While before year 2020, this portfolio was almost 0% CAGR. You know just 1 year rally in reliance ( recent one) was enough to cover the gap. Probably we will attribute this to Luck this time. 

Look at this weight-age power that reliance holds upon nifty.
Nifty needed 47 other stocks to generate a mere 1.4% alpha CAGR w.r.t the 3.63% of portfolio.
That is not convincing enough to me.

The following graph is showing movement of invested 1 lakh in each stock of each year.

Graph given below is representing overall movement of 3 lakhs portfolio of IDIOT strategy and NIFTY 50 index.

After so much hurdles IDIOT portfolio manages to earn some profit of 1.6 lakhs in your pocket and comes closer to NIFTY 50 portfolio

 

Nifty
3 Lakh at 5.08% CAGR became 5.43 Lakh


IDIOT
3 Lakh at 3.64% CAGR became 4.6 Lakh.  IDIOT losses by a small margin.

2009 January till 2020 August

In 2009 January nifty top 3 by weight-age were 

  1. Reliance
  2. NTPC
  3. ONGC

Beauty with Nifty Index is, its a jungle with survival of the fittest. Airtel under-performed in 2008 and thus NTPC replaced its position.

The following graph is showing movement of invested 1 lakh in each stock of each year.

Graph given below is representing overall movement of 3 lakhs portfolio of IDIOT strategy and NIFTY 50 index

Here also IDIOT is saved by Reliance to earn profit. Performance of ONGC and NTPC remains stagnant for all years.

Nifty has given a CAGR of 12.31% since 2009. But our IDIOT portfolio gave just 9.63%. An under performance by 2.7% . Back in those days, this was the expense ratio/Exit Loads of Mutual Funds.

I know percentage “kisko samajh aata hain”. In rupees…

Your 3 Lakh in nifty became, 10.75 Lakh
3 Lakh in IDIOT portfolio became, 8.24 Lakh
And we are not considering dividends for both.

Lets move onto next year. We do this once again. Invest 1 lakh each into top 3 stocks of Nifty

2010 January till 2020 August

 

In 2010 January nifty top 3 by weight-age were 

  1. Reliance
  2. Infosys
  3. IcIcIBank

Survival of the fittest ensured that Infosys and IcIcIBank replaced 2009 January top 2 guys.

The following graph is showing movement of invested 1 lakh in each stock of each year.

Graph given below is representing overall movement of 3 lakhs portfolio of IDIOT strategy and NIFTY 50 Index.

For this year ICICI gives  downfall at the start of year 2020 but still picture get saved and IDIOT didn’t bear any losses. Here also IDIOT is managed to beat NIFTY 50 returns successfully

Nifty has given a CAGR of 8% since 2010.
IDIOT portfolio gave just 11.31%.
An Alpha performance by 3.3%

I know percentage “kisko samajh aata hain”. In rupees…

Nifty
3 Lakh at 8% CAGR became 6.47 Lakh


IDIOT
3 Lakh at 11.31% CAGR became 8.75 Lakh. IDIOT strategy Wins

2011 January till 2020 August

 

In 2011 January nifty top 3 by weight-age were 

  1. Reliance
  2. Infosys
  3. IcIcIBank

there is no change over last 1 year.

The following graph is showing movement of invested 1 lakh in each stock of each year.

Graph given below is representing overall movement of 3 lakhs portfolio of IDIOT strategy and NIFTY 50 Index.

Here also same story of 3 stocks of last year but this year IDIOT manages to beat NIFTY 50 with more difference than last  year.

Nifty has given a CAGR of 7% since 2011.
IDIOT portfolio gave just 11.09%.
An Alpha performance by 4.09%

I know percentage “kisko samajh aata hain”. In rupees…

Nifty
3 Lakh at 7% CAGR became 5.5 Lakh


IDIOT
3 Lakh at 11.09% CAGR became 7.69 Lakh.  IDIOT wins

2012 January till 2020 August

In 2012 January nifty top 3 by weight-age were 

  1. ITC
  2. Reliance
  3. Infosys

there is no change over last 1 year.

The following graph is showing movement of invested 1 lakh in each stock of each year.

Graph given below is representing overall movement of 3 lakhs portfolio of IDIOT strategy and NIFTY 50 Index.

Reliance Ind. and Infosys performs good in IDIOT portfolio where as ITC shows almost stagnant results for several years and then shows downward trend. In spite of all this IDIOT gives more returns than NIFTY 50.

Nifty has given a CAGR of 11.54% since 2012.
IDIOT portfolio gave just 16.27%.
An Alpha performance by 4.73%

I know percentage “kisko samajh aata hain”. In rupees…

Nifty
3 Lakh at 11.54% CAGR became 7.18 Lakh


IDIOT
3 Lakh at 16.27% CAGR became 10 Lakh.  IDIOT wins

2013 January till 2020 August

In 2013 January nifty top 3 by weight-age were 

  1. ITC
  2. Reliance
  3. IcIcIBank

Over last 1 year, Infosys was replaced by IcIcIBank

The following graph is showing movement of invested 1 lakh in each stock of each year.

Graph given below is representing overall movement of 3 lakhs portfolio of IDIOT strategy and NIFTY 50 Index.

Reliance Ind. is constantly managing to prevent losses for IDIOT.  ITC fails to give any returns while ICICI Bank Ltd.  manages to earn some profit. Therefore once again IDIOT beats NIFTY 50 results.

Nifty has given a CAGR of 9.30% since 2013.
IDIOT portfolio gave just 13.90%.
An Alpha performance by 4.6%

I know percentage “kisko samajh aata hain”. In rupees…

Nifty
3 Lakh at 9.30% CAGR became 5.5 Lakh


IDIOT
3 Lakh at 13.90% CAGR became 7.4 Lakh.  IDIOT wins !

2014 January till 2020 August

 

In 2014 January nifty top 3 by weight-age were 

  1. ITC
  2. Infosys
  3. Reliance Industries

Over last 1 year, IcIcI was replaced by Infosys.

The following graph is showing movement of invested 1 lakh for each year.

This graph is presenting overall movement of 3 lakhs in NIFTY 50 and in top 3 nifty 50 stocks.

All three stocks remained almost constant up to 2017 but then Reliance took a big flight as well as Infosys also at some extent . ITC fails to give any profit. After 2018 IDIOT portfolio manage to surpass the NIFTY 50 returns.

Nifty has given a CAGR of 10.08% since 2014.
IDIOT portfolio gave just 16.78%.
An Alpha performance by 6.7%

I know percentage “kisko samajh aata hain”. In rupees…

Nifty
3 Lakh at 10.08% CAGR became 5.3 Lakh


IDIOT
3 Lakh at 16.78% CAGR became 7.6 Lakh.  IDIOT wins !

2015 January till 2020 August

 

In 2015 January nifty top 3 by weight-age were 

  1. ICICI Bank
  2. Infosys
  3. ITC

Over last 1 year, Reliance was replaced by ITC Ltd.

The following graph is showing movement of invested 1 lakh for each year.

This graph is presenting overall movement of 3 lakhs in NIFTY 50 and in top 3 nifty 50 stocks.

Infosys maintains the upward trend from 2008 to 2020. ICICI shows significant downward slope from 2020 and end up making only a small amount profit while as ITC get hit by losses. So we can clearly conclude that because of ITC and ICICI , IDIOT looses from NIFTY 50 .

Nifty has given a CAGR of 6.28% since 2015.
IDIOT portfolio gave just 4.95%.
An Alpha performance by 1.33%

I know percentage “kisko samajh aata hain”. In rupees…

Nifty
3 Lakh at 6.28% CAGR became 4 Lakh


IDIOT
3 Lakh at 4.95% CAGR became 3.8 Lakh.  IDIOT losses !

2016 January till 2020 August

 

In 2016 January nifty top 3 by weight-age were 

  1. Infosys
  2. HDFC Bank
  3. HDFC

Over last 1 year, Infosys and ICICI were replaced by HDFC and HDFC Bank.

The following graph is showing movement of invested 1 lakh for each year.

This graph is presenting overall movement of 3 lakhs in NIFTY 50 and in top 3 nifty 50 stocks.

Our all three stocks performs well and earns a profit for IDIOT and once again IDIOT portfolio get successful to beat NIFTY 50.

Nifty has given a CAGR of 7.89% since 2016.
IDIOT portfolio gave just 13.90%.
An Alpha performance by 6.01%

 

I know percentage “kisko samajh aata hain”. In rupees…

Nifty
3 Lakh at 7.89% CAGR became 4 Lakh


IDIOT
3 Lakh at 13.90% CAGR became 5 Lakh.  IDIOT wins !

2017 January till 2020 August

 

In 2017 January nifty top 3 by weight-age were 

  1. HDFC Bank
  2. Reliance Industries
  3. HDFC

Over last 1 year, Infosys  was replaced by Reliance.

The following graph is showing movement of invested 1 lakh for each year.

This graph is presenting overall movement of 3 lakhs in NIFTY 50 and in top 3 nifty 50 stocks.

 

HDFC and HDFC Bank earns a small profit in comparison with our star performer Reliance Ind.  We can clearly see that IDIOT is able to beat NIFTY 50 from the start.

Nifty has given a CAGR of 10.09% since 2017.
IDIOT portfolio gave just 31.55%.
An Alpha performance by 21.46%

I know percentage “kisko samajh aata hain”. In rupees…

Nifty
3 Lakh at 10.09
% CAGR became 4 Lakh

IDIOT
3 Lakh at 31.55% CAGR became 6.8 Lakh.  IDIOT wins !

2018 January till 2020 August

 

In 2018 January nifty top 3 by weight-age were 

  1. HDFC Bank
  2. Reliance Industries
  3. HDFC

Over last 1 year, nothing  was replaced.

The following graph is showing movement of invested 1 lakh for each year.

This graph is presenting overall movement of 3 lakhs in NIFTY 50 and in top 3 nifty 50 stocks.

Reliance Ind. as usual gives good chunk of profit while as HDFC and HDFC Bank merely gives any profit for IDIOT. As like last year IDIOT is beating NIFTY 50 from start.

Nifty has given a CAGR of 3.14% since 2018.
IDIOT portfolio gave just 20%.
An Alpha performance by 16.86%

I know percentage “kisko samajh aata hain”. In rupees…

Nifty
3 Lakh at 3.14
% CAGR became 3.19 Lakh

IDIOT
3 Lakh at 20% CAGR became 4.32 Lakh.  IDIOT wins !

2019 January till 2020 August

 

In 2019 January nifty top 3 by weight-age were 

  1. HDFC Bank
  2. Reliance Industries
  3. HDFC

Over last 1 year, nothing  was replaced.

The following graph is showing movement of invested 1 lakh for each year.

This graph is presenting overall movement of 3 lakhs in NIFTY 50 and in top 3 nifty 50 stocks.

With our selection of stocks performance of Reliance Ind. also remains same but this year because of HDFC and HDFC Bank IDIOT bears some losses. In spite of all this year also IDIOT successfully beat NIFTY 50 returns.

Nifty has given a CAGR of 2.06% since 2019.
IDIOT portfolio gave just 22%.
An Alpha performance by 19.94%

I know percentage “kisko samajh aata hain”. In rupees…

Nifty
3 Lakh at 2.06
% CAGR stood still at 3 Lakh

IDIOT
3 Lakh at 22% CAGR became 3.6 Lakh.  IDIOT wins !

Benefits of IDIOT Strategy?

 

Cost

Open a zerodha account. Buy this equity stocks at zero cost.
Mutual Funds will charge you expense ratio of close to 1% per annum. (3000 rupees for 3 lakh every year)
Other Avenues like Portfolio manager Scheme after high AMC fee rarely beat IDIOT strategy.

Time

Zero time investment. Only time you invest is to arrange 3 Lakh or any amount your wish to invest.
Google “Best mutual fund” you will find deciding a mobile takes less time than a Mutual fund.

Efforts

Zero efforts. You bought NTPC , ONGC and yet here you are with alpha returns.

Taxes

No profit booking means no Tax obligation. Longer you hold, you get better benefits of indexation.

Transparency

You invested in rupees. You see results in rupees. You dont have to trust a NAV 

Why IDIOT strategy wins ?

In simple words,
Market Cap of APPLE company = Market Cap of India listed companies
India is a huge potential untapped due to too much diversification and lack of integration.

Top 3 companies of China earns 8 times more than India’s top 3. We are sure the gap will close where india’s Top 3 will getting higher revenues. This makes IDIOT happy.

 

Did IDIOT earn more than Nifty ?

 

Yes.

A person with zero time to research, no clue about the stocks name or what its business is about. He/She just makes a new year resolution to invest 3 Lakh into top 3 stocks by picking date as January 1st of every year…has actually beaten an actively managed index fund. Funny and hurtful. Its like that back-bencher beats the topper without even touching book. ouch.

so far, You have spend more time reading this article than the IDIOT strategy demands.

Every 3 Lakh invested when held until august 2020 is…shown below

Lets me break down individual CAGR returns. Check out how 2017 gave 31% CAGR. Literally doubled money since 2017. 

 

What is the Blind-Spot ?

Too much concentration in one stock.

Do notice how Reliance took 10 Lakh out of 36 Lakhs invested. And reliance was an under performer until year 2017! You are lucky that reliance industries did the right thing by 2020. This single stock could make or break your portfolio for good or bad.

But then ofcourse, if not Ambani then who? is an unsolved question. 

Secondly
, Even though TCS is higher than Infosys in market cap.
Infosys got 6 Lakhs out of 36 Lakhs that you invested.

Thirdly, icicibank and HDFCbank concentration.

However The IDIOT missed YesBank, DHFL, Rcom and many such dubious (in hindsight) companies.

For a person who plans all his 20 year Home Loan EMI, retirement Planning etc based on his salary is already volunteering for single source of income. This is also an concentration risk. Remember, that company can remove you with 30 days notice period.

We should be happy that IDIOT is atleast ending up with strong companies will be for sure around for next 2-3 decades. I can see you are not thinking alot. Probably this approach worked in past 12 years. Might not work in next 10 years. Ofcourse you are right. IDIOT missed BajajFinance and so many other great companies.

The IDIOT wins when all this active fund managed cannot beat NIFTY by substantial margin while a 0 time, 0 research trick gets the job done. 

Investing is not a rocket science. It is a check-list to be followed with discipline.

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Founder & Chief Strategist www.MoneyDhan.com