3 Principles and 3 Practices for Superior Lifetime Investment Returns

Last Updated on April 23, 2026 by teamtfl

In March 2020, the Sensex fell 38% in 40 days. In October 2021, it was at an all-time high. In October 2022, it corrected 16% on concerns about US rate hikes. In September 2024, it crossed 85,000.

Every one of those events generated the same response from media and anxious investors: panic, predictions of further collapse, urgent advice to exit. Every one of those events turned out to be temporary. The investors who did nothing – who held their plan when everything around them said to abandon it – came out far ahead of those who acted on the noise.

This post is about why that happens, and what it takes to be the investor who holds.

The framework here comes from Nick Murray, the American advisor-coach who influenced how I think about investing. My firm name – Ark – is itself drawn from one of his books. The 3 Principles and 3 Practices below are not complex. They are, however, consistently difficult to follow. And they account for perhaps 90% of long-term investment success.

The 3 Principles

1. Faith

Faith is not hope. Hope is what you feel when you want something to happen without evidence. Faith is what you have when the evidence is clear, the history is consistent, and you have chosen to act on it regardless of short-term noise.

The evidence for Indian equities is clear. The Sensex was approximately 1,000 in 1990. It crossed 85,000 in 2024 – a 85x return, roughly 14% CAGR over 34 years. That 34-year period included 1992 (Harshad Mehta scam), 1997 (Asian financial crisis), 2000-2001 (dot-com crash and 9/11), 2008 (global financial crisis, -52% fall), 2016 (demonetisation), 2020 (COVID crash, -38% in 40 days), and multiple election-related panics.

Every one of those events felt like a permanent change. None of them were. The investor with faith in the long-term trajectory of Indian equities – not hope that it would recover, but faith based on 40 years of evidence – did not need to predict which event would cause the next fall, or when recovery would come. They simply held.

Faith has to be based on data, not optimism. Read the data on Indian equity market history before every panic, not during it.

2. Patience

Warren Buffett described the stock market as “a highly effective mechanism for the transfer of wealth from the impatient to the patient.” This is not a metaphor. It describes the actual mechanism by which long-term equity investors consistently outperform short-term traders.

The impatient investor, when markets fall, does the following: exits to “wait for recovery,” misses the fastest days of the recovery (which typically come immediately after the worst days), re-enters later at higher prices, and ends up with significantly lower returns than if they had simply held. This is not a theoretical failure – it is documented across investor behaviour studies in every market cycle.

The critical insight about patience: if you exit now and wait to re-enter, you are taking responsibility for being right twice – once when you exit (you need to exit at or near the top), and once when you re-enter (you need to re-enter at or near the bottom). Almost nobody gets both right. The attempt to time the market nearly always destroys more value than the original fall would have.

The patient investor’s single advantage is refusing to play the timing game. It sounds passive. Over 20 years, it is the most powerful active choice available.

3. Discipline

Patience prevents wrong action. Discipline ensures right action continues. The right action, in most cases, is maintaining your SIP regardless of market conditions.

In the March 2020 crash, mutual fund SIP cancellations spiked. Investors stopped their SIPs at exactly the moment they were buying the most units per rupee invested. By December 2020, the market had fully recovered. Those who cancelled their SIPs in March 2020 and did not restart until September missed both the cheapest units and the recovery.

Discipline also means rebalancing when markets have moved significantly in one direction – selling the asset class that has overperformed and buying the one that has underperformed. This is emotionally difficult (you are selling the winner and buying the loser) but mechanically produces better returns over time. It requires a written investment policy that you follow regardless of feelings.

“Principles dictate practices. If you don’t believe in the principles – if you don’t have faith that equity markets recover, patience to hold through the falls, and discipline to keep investing – then the practices that follow will feel counterproductive and you will abandon them at the worst time.”

The 3 Practices

1. Asset Allocation

Asset allocation is the proportion of your portfolio held in different asset classes: equity, debt, gold, real estate, cash. It is the single most important portfolio decision you will make – more important than which specific funds or stocks you choose within each asset class.

Research consistently shows that asset allocation decisions explain approximately 90% of the variability in long-term portfolio returns. The specific securities or funds chosen within each allocation explain far less. Yet most investors spend most of their time on fund selection and almost no time on asset allocation.

The right asset allocation depends on your time horizon, risk tolerance (genuine financial resilience to absorb a 30-40% fall, not just psychological attitude), and income stability. For a 45-year-old with a 15-year horizon to retirement and stable employment, 60 to 70% equity is appropriate. For a 60-year-old who has just retired and needs to draw from the portfolio, 40 to 50% equity with a bucket structure for near-term needs is more appropriate. There is no universal number – only the right allocation for your specific situation.

2. Diversification

Diversification within each asset class reduces concentration risk without sacrificing expected returns. Within equity, this means not holding more than 3 to 4 mutual funds (more creates overlap and pseudo-diversification), ensuring coverage across large-cap, mid-cap, and potentially flexi-cap categories depending on your risk tolerance, and not concentrating in any single sector. Within debt, it means spreading across PPF (government-backed, tax-free), short-duration funds (liquid), and NPS (retirement-specific).

The key principle: you will never predict the best-performing asset class or fund in advance. Diversification ensures you own enough of what turns out to perform best, without holding so much of any single thing that failure destroys the portfolio.

For retirement investors specifically: avoid the common mistake of concentrating in real estate (illiquid, concentrated in one asset) or FDs (inflation risk) while calling it “safe.” True diversification means owning assets whose returns are not perfectly correlated – equity and debt move differently over time, which is why the combination reduces volatility without reducing returns proportionally.

3. Rebalancing

Rebalancing is the practice of periodically returning your portfolio to its target asset allocation. If your target is 60% equity and 40% debt, and a strong equity run has pushed the allocation to 75/25, rebalancing means selling some equity and moving proceeds to debt until 60/40 is restored.

This sounds simple. It is psychologically difficult because it requires selling the outperforming asset (equity, when it is rising) and buying the underperforming one (debt). It feels wrong. It is, in fact, a disciplined form of buying low and selling high – the opposite of what most investors do emotionally.

Rebalancing frequency: annual rebalancing is sufficient for most investors. Some advisors use a threshold-based approach (rebalance when any asset class moves more than 5% from target), which is also effective. The key is to set the trigger in advance and follow it mechanically, not based on how you feel about the market at the time.

One question for you: In the March 2020 crash, what did you do with your equity portfolio – hold, reduce, or increase? And looking back, do you wish you had done something differently?