Indian markets have given 1000% returns in the last 15 years but not many people around you would have made even that much, forget beating the market.
Because of bad investor behaviour.
Your returns depend more on your behaviour than on the Mutual Funds or stocks that you invest in.
World over, investor returns (i.e. your actual returns) lag investment returns (Sensex returns, Mutual Fund returns) by a hefty margin. There is even a word for it - behaviour gap.
Most of the behaviour gap comes from chasing trends and making ad-hoc decisions.
Here are some simple (but not easy!) things that you can do to maintain discipline and minimize your behaviour gap:
1. Stop checking your investments
When Fidelity conducted a study on which group of their investors managed to get the highest returns over time they found that their best investors had some thing in common - they were all either dead or had forgotten that they had an account!
Now of course you don't want to die to get higher returns (where's the fun in that) but the more often you check your portfolio, the more likely you are to make some adjustments influenced by recent performance which won't be in line with your original plan and usually detrimental in the long term.
Being a co-founder and a product manager, I currently need to have the Goalwise app on my phone but I have been investing for more than 8 years now and I have never installed any app to check my investments 'on the go'.
2. Turn off the news
This is a sure shot way of losing your sleep and getting lower returns.
We think that if we keep ourselves updated with the latest financial news or listen to the market pundits, we will be able to time the markets to generate higher returns or prevent losses.
It doesn't work that way. Markets are very unpredictable, especially in the short-term, and whatever news we hear is already factored into the market.
All we end up doing is making ad-hoc and ultimately detrimental decisions based on news that has no actionable value vis a vis our investment goals.
Odysseus survived the lure of Sirens' song by tying himself to the mast of his boat.
3. Invest strictly according to your risk profile
There are very few people who truly have a high risk profile. Most people (including myself) have a moderate or low risk profile.
Yet the recent market performance has swayed many first time investors to invest in high risk allocations.
Such investor are at the highest risk of a huge behaviour gap. When the markets go down (and they will at some point), they will sell off their investments and exit the market (usually at a loss).
Investors who exit the market are rarely able to enter it at the right time again. There are always reasons to keep waiting till everything looks safe again. And by that time the markets are already much higher than when they got out and running hot again.
And the cycle repeats.
Source: Wall Street Cheatsheet
Summary - We are the enemy
We are bad at making objective data-driven buy/sell decisions since our minds are usually driven by greed and fear when it comes to investments.
So the best way to do well is to minimize the number of decisions you make on the fly.
Fewer decisions mean fewer mistakes.
All good investors have a system or a checklist which they stick to even if it is not fully automated. They don't go reinventing their process every time they have to make an investment.
Figure out a strategy to select good Mutual Funds (or stocks) by testing your ideas, decide on a review frequency (eg annually) according to the selection strategy, set up a SIP and then forget about it.
Review the performance only at the set frequency because doing anything else would mean not following the strategy (which is as good as not having a strategy).
Be aware of your emotions as an investor. Get the basics right. Ignore the rest.
Less is more.