If your portfolio earns 50% in one year and then loses 50% the next year, you are back to the same level, right?
Your two year return is still a negative 25%.
Here’s the calculation. Rs 100 becomes Rs 150 in year one, and then halves to Rs 75 in year two. So, net-net, you are down from Rs 100 to Rs 75 over two years, which is a -25% decline.
This seems elementary, but a lot of us miss this simple math.
Anyways, the point I am trying to make today is not about our innumeracy, but that to achieve a high return over a long period of time, we must focus on minimizing our mistakes.