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Everything is on sale

Aug 3, 2013 | Dr C K Narayan | Interesting Read | 6 Comments

Or, Is it time to buy stocks?

I just cant seem to stop my wife or daughter and other ladies in our family these days. Every chance they get they are running off to the mall. Their conversations these days are only about percentages- 40% here and 50% there. They are talking about the sales going on of course in various malls. They are mortified when the next shop offer 70% on the goods they just bought at 50% thinking it to be a bargain. Cheating! I can hear them crying. But does that stop them? Hell, no. Off they go into the 70% store and grab some more unwanted stuff. After all, its on sale right? When can you get this kind of bargains again, they ask? I tell them,like, next July every year, but that of course falls on deaf ears! Its not a case of whether the stuff is wanted or not- its just the act of shopping and getting something far cheaper- never mind whether you would have bought it at normal price or not.

I wonder when that sentiment will percolate into the market? For sure, we are having an even bigger sale going on in the market and have been for the past year or more! But funnily, the same logic of stuff being available at cheap rates do not seem to generate the same kind of sentiments. And its not just stocks, the rest of the stuff is on sale too. Brokers are dropping commission rates like crazy, mutual funds have slashed commissions and now direct investing too is available, advisors us are scrambling to offer discounts on their services, hardware and software providers are willing to bend over backwards for a sale or renewal of their products. But do we have anyone biting? Doesn’t really look like it.

The main indices are trading near their highs (recently) but the real market (meaning, the one where you and me live not the 10-20 stock universe that the funds inhabit) is trading, I would think, at 2008 levels. If that is not a sale then what else is. However, this is always the paradox of the market- at the tops there is no dearth of money flowing and at the bottoms there is no signs of any money.

This is a lesson on how people view bargains. A dress item is a bargain if it is marked down 50% but a stock is a pariah if the same thing happens to it. It is because of the additional value we attach to the stock. We want it to work for us and grow while doing so. On the other hand, we know that the dress items that we buy is a depreciating asset and therefore the only reckoning is whether it is of value NOW and not what it will be worth in the future.

The fact that Zara store is raking up crores in days (no wonder Ortega is the third richest man in the world!) shows clearly that there is enough money out there. What is lacking is the reckoning that the money can be spent on something far more valuable right now. The index may be some sort of 10-stock wonder right now, but there are plenty of stocks at bargain levels or reaching there that should make those spending the money at the Malls take notice.

The markets move in cycles and it seems like we are winding down to the end of the current cycle that began back in 2008. All kind of signs are popping up. It is time to start looking at stocks again.



Or, Is it time to buy stocks?



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