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Throw caution to the winds?

Jun 30, 2014 | Dr C K Narayan | Fundamental Twist, Interesting Read, Long Term Impact, Technically Oriented | 1 Comment

Throw caution to the winds?

Or, why beat the treaded path all the time? 

Markets continue to hover near the highs and as I scour the papers, websites, magazines, TV channels looking for something intelligent by way of analysis or comments, all I can find are the same set of platitudes. So I decided that it is time to question some of them (if not all). So here goes an antithetical piece.

Most oft seen comment or quote: investors should take a stop back to assess the situation. Stocks are no longer available cheap. Nothing much has changed fundamentally on the ground. New govt faces a lot of challenges. Monsoon is likely to be deficient.

Reading that list of woes, do you really find something that you don’t know already? I for one don’t. Of course I know that the Nifty is at an all-time high which automatically disqualifies (for most part) most stocks from being cheap. Of course I don’t expect Modi to wave a magic wand. And I am sweating as much as the next guy in the sweltering heat that continues because the monsoon is delayed. Now, all these are supposed to make me shy away from a market that just keeps roaring ahead?

Lets look at some more self-evident facts. At 19% gain in 2014 so far is it not the largest six month gain in the index? Hasn’t more FII money flowed into the country since May 16th than what flowed in during entire 2012-13? Has India been one of the top performers among all stock markets across the globe? Doesn’t the market still trade at 18x trailing PE? Is that bubble valuation ever?

So if someone is suggesting that I should pullback from entering the market at the current levels based on the items mentioned in the earlier para what should I do if someone else quotes me the statistics as mentioned in the above para? Problem is, no one is quoting the second set of facts – which are also as evident as the first lot- and saying dive in right now buddy!

Lets see it in a slightly different way. Assume that the current statistics that I quote above were available three months ago. Presumably the same advice would have been proffered? And if you had followed that, where would you have been? Just think about it.

Here is another “prudent” argument put forward often. In the long run it is not sentiment but growth in earnings and profitability that will determine the prices of the future. True. This is being used by many to state that the recent run up – particularly stocks from policy impacted sectors- have made the stocks “expensive “ over the short term. Says who? What makes them expensive? Are stocks following past data or expectations of future data? What if these very stocks were to see an acceleration of growth and profits in the next 6 months? What then? Will they remain expensive? Obviously not! But then, that is something you come to know only much later isn’t it?

But the key thing is that the market is pricing it that way today. Not everyone in the market is following deep analysis- in fact very few do. Most just pretend.- including the institutions types. They are all as much suckers for the sentiment bug as the small trader is.

So my point is, why not throw caution to the winds and see where it gets you? Take the simple step of setting a disaster stop. And dive in. Who is to say that is a wrong step? What if you succeed spectacularly? Suppose you had done that with AurobindoPharma. Or Bharat Forge. Or Ajanta Pharma.Or any of such stocks? Would you not have already doubled and quadrupled your money in a matter of months? Those stocks may have been cherry picked, but hey, are they not part of the same market that all of us are trading and investing into? Are any of them fly-by-night names? Hell, no.

Many times, well intentioned advice in the market is just not good advice. It is just scared gobbledegook put out by people who seldom trade or invest even a buck in the market. All they can do is write ‘appropriate’ sounding columns. Along with learning how to play the markets one must learn, equally well, to identify such silly pieces.


  1. Suresh

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