Is a 45% Return Over 7 Months in the Stock Market Beginner's Luck?

A 45% return in the stock market over just 7 months is significantly above average and could be considered an exceptional outcome, especially for a beginner. This article explores the factors that contribute to such impressive results and whether they can be repeated or attributed to luck.

Market Conditions

The overall market conditions play a crucial role in determining returns. If the broader market was performing exceptionally well during that period, it might be less surprising to see such a return. However, if the market was flat or declining, such a high return would be more indicative of skill or luck.

Investment Strategy

The type of investments made also significantly affects the results. High-risk strategies, such as individual stock picks or options trading, may yield higher returns but also come with increased volatility. In contrast, more conservative investments like exchange-traded funds (ETFs) may provide more stable returns.

Diversification

A well-diversified portfolio might not achieve such high returns, as consistent long-term gains often come from spreading risk across various sectors and asset classes. Concentrated bets on a few stocks could lead to outsized gains, but they also carry higher risks.

Experience Level

For a beginner, achieving such a return could be partly due to luck. This is especially true if the decisions were made without a solid understanding of the market or investing principles. As experience grows, an investor is more likely to make informed choices that can lead to sustainable long-term growth.

Long-Term Perspective

Contrary to short-term gains, successful investing typically focuses on long-term performance rather than short-term profits. Sustaining high returns over several years is a more reliable indicator of skill and a sound investment approach rather than just luck.

Conclusion

A 45% return in 7 months can be seen as beginner's luck. However, it also depends on the factors mentioned above. If similar returns are achieved over a longer period, it may indicate a sound investment approach rather than just luck. Market conditions, investment strategy, and diversification are all key variables to consider. Understanding these factors can help new investors make more informed decisions in the future.

Additional Insights

My experience as an investor has shown that for any 3-year period in the market, your returns will almost always be positive and better than the returns on bonds and bank deposits. However, for any period shorter than 3 years, it requires more luck than skill. Many novice investors have experienced significant gains during favorable market conditions, such as India's market performance in 2014-2016. It is important to remember that long-term consistency is more reliable than short-term luck.