Shankar Sharma: ‘Stay Away From Equities. Buy Gold’

‘In my entire career, whenever friends, relatives, or associates have sought my counsel, I have told them consistently: Stay away from equities. Buy gold. Place funds in fixed deposits. Acquire some raw land.’
‘That is all one genuinely needs to build meaningful, enduring wealth, without the attendant anxiety of equity market participation.’

Kindly note that this illustration generated using ChatGPT has only been posted for representational purposes.

In the second part of his no-holds-barred Rediff interview, Shankar Sharma, ace investor, serial entrepreneur, and founder of GQ FinXRay, turns his analytical lens on India’s celebrated SIP culture — and finds it wanting.

‘Timing is the only thing that matters in markets’

You have described current investor behaviour as ‘hypoglycaemic hallucinations.’ And yet SIP inflows remain at Rs 30,000 crore per month — real capital, not sentiment.
Are investors delusional, or simply early — confident that two years hence, markets will be higher and their patience vindicated?

Look, the Indian wealth management and asset management industry is a remarkable marketing machine — arguably the finest in the world at what it does. I say this with genuine admiration, because what it has achieved is extraordinary: it has successfully sold a proposition that is, in point of fact, unsupported by any rigorous data, statistical analysis, or empirical evidence whatsoever.

The proposition that it is worth the average investor’s time, effort, and psychological stress to participate in equity markets is one I simply do not accept.

In my entire career, whenever friends, relatives, or associates have sought my counsel, I have told them consistently: Stay away from equities. Buy gold. Place funds in fixed deposits. Acquire some raw land.

Three instruments — that is all one genuinely needs to build meaningful, enduring wealth, without the attendant anxiety of equity market participation. That has been my advice to my own family, and I have not wavered from it.

But historically, staying invested for the long term has delivered. The narrative of compounding — through 2000, through 2008, through the COVID crash of 2020 — seems well-evidenced. Every time the market has fallen, it has recovered and rewarded patient investors.

That argument is constructed upon four decades of carefully cherry-picked data, and I am quite prepared to go deeper into it to demonstrate why it does not withstand scrutiny.

The supernormal profits in equity markets were made only — I repeat, only — by those who had the discipline, the systems, and the analytical capability to identify the precise windows of opportunity: The weeks and months immediately following a crash.

Whether that was the 2000 crash, the 2008 crash, or the COVID collapse of 2020 — the extraordinary returns were concentrated in those specific two-week, two-month, or four-month windows after the crash, by those who deployed capital aggressively at that moment.

And then — crucially, equally crucially — who had the judgment and the discipline to exit when markets reached exhaustion: in 2007, for instance, or again in 2024.

If you achieved both of those things — the entry and the exit — then yes, you made supernormal profits. That is precisely what I have done for my own capital.

But this entirely demolishes the narrative of passive long-term buy-and-hold investing, because what I am describing is not buy-and-hold — it is precise timing.

And timing, you would argue, is everything?

Timing is the only thing that matters in markets. The absolute only thing. But here is the question that follows immediately from that: Who can time markets with any consistency?

Only a professional who does this for a living around the clock — who possesses the quantitative systems, the refined models, and most importantly, the decades of experiential understanding of how markets behave across different economic regimes and stress scenarios.

How is the average retail investor going to approach even a fraction of that capability? It is simply not possible.

It is rather like suggesting that because one plays cricket on the weekend, one ought to be considered for the national side. The gap is not one of degree — it is categorical.

And the corollary of this is equally important: If a mutual fund manager were genuinely capable of generating 50% returns per annum, why on earth would he spend his professional life managing your capital for a fee of 1%?

When I can generate 50% a year for myself, why would I give that expertise away to someone else and accept 1% for the privilege? Please think about this carefully.

I do not manage outside capital. Zero. Because it would be an extraordinary waste of my intellectual effort to generate 1% in fees when I can deploy the same capability for my own account (and generate 50%).

The answer to why certain fund managers manage other people’s money is, unfortunately, not because they are uniquely brilliant at it.

‘Investing is, at its core, a zero-sum game’

That is a rather bleak picture for the ordinary MF SIP investor.

Illustration: Dominic Xavier/Rediff

It is not bleak — it is honest. And here is the structural reality that one must understand: Investing is, at its core, a zero-sum game. At the end of the day, in order for me to win, someone else must lose. That is not cynicism — it is arithmetic.

Now, in order to create that population of losers, the marketing machinery goes into overdrive. You need the millions of retail investors, the millions of SIP participants, for their capital to flow somewhere. And where does it flow?

• Into the coffers of foreign institutional investors exiting their positions.
• Into the coffers of promoters selling down their stakes.
• Into the coffers of family offices reducing their holdings.

That is the sophisticated end of the market — the end that understands what it is doing. The retail investor, the SIP participant, occupies the other side of that trade. That is the structural reality of how these markets function.

Net-net, averaged across time, a buy-and-hold SIP investor is going to earn perhaps 10% in rupee terms — if that. Now divide that 10% by the volatility of the journey — because volatility is not an abstraction, it is stress, it is sleepless nights, it is poor financial decisions made in moments of panic. And then further divide by the dollar depreciation of the rupee over time. What remains?

Compare it with what you would have earned from simply holding gold — no tickers to watch, no fund manager’s quarterly letter to parse, no asset management fees, no volatility of consequence — and the gold return, in dollar terms, is broadly comparable or superior, because gold is a dollar-denominated asset. I would have said this ten years ago. I say it now. The data has not changed.

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Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.