“If you spent 13 minutes last year guessing about the economy and the indicators, you wasted 10 minutes”. I am not sure about whether I got the wordings correct, but Peter Lynch said something to this effect.

I am myself not a big believer in asset allocation strategies based on the state of the economy – but I did some shift from a higher price earning stock to a lower p/e stock and (luckily) benefited by the move. However, here let me share with you a simple concept called “Economic Indicators”. Largely speaking, there are 3 types of economic indicators – leading, concurrent, and lagging.

1. Leading indicator: It could either be in the form of opinion polls or data gathered from banks, mortgage companies etc. For e.g. if people had to apply to the government to buy cars (and it took 6 months to get the permission) then the number of applications could be a good indicator about what kind of perception people are having about the immediate future.

2. Concurrent / Coinciding: If you see a lot of people eating out, and you cannot get a place to sit in a fancy restaurant, airlines are full, hotels refuse to reduce the rack rate, etc. – this means you look at data like hotel occupancy, look at air craft discount rates, see whether airlines are going into bankruptcy or coming out of one! These are events which happen along by your side – so keep watching for concurrent indicators.

3. Lag indicators – demand for steel and cement are now being touted as good buys! All analysts are saying “market is fairly valued” on TV and other media, sales of new homes are hitting highs, home loan companies are announcing excellent result, construction companies are boasting higher p/es than the index by a mile…these are the lag indicators.

So keep looking at the indicators and realise that if you have a 30 year vision, and a belief in the Indian economy, do SIPs in good funds of your choice!

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