Cheer leaders are cheering once again…

The cheer leaders are screaming once again – welcoming the 10,000 index. Whether it is television, print, or the internet – all of them have headlined the great reclaiming of the 10k index.

The typical middle class guy is happy, but of course skeptical. The questions he is asking are the following:
Will this market rally last?
Does it have the strength to last?
Will it come down again?
Is it a dead cat bounce?
What do the chartists say?
The most honest answer is nobody has an accurate answer to any of these questions. And when I say markets it is generic – US markets, Indian markets, all behave more or less similarly.

However, one theory that investors / traders are willing to buy is ‘the worst is over’. Having been in the markets on the journey up to 21k, many believe that 7500 will be re-tested.

People are skeptical (In US and in India) about the economy. Are they right?
Sure they are right. Lots of pain is left in the economy.

Let us look at the US economy first:
·    Jobs are still being lost
·    People find it difficult to believe that some banks can be profitable so quickly
·    Banking is in a mess – ask Warren Buffet!
·    Real estate is falling ‘less fast’
·    Nobody is sure about what Maddox has done!

What about the Indian economy?
1.    Banking is slowing but is not in a mess
2.    Jobs are still being lost
3.    Some new jobs are being created
4.    Real estate is down by a mile
5.    Salaries, rent, interest rates are all headed south

How much of an IQ do you need to say things can get worse in the real economy? Not much I guess. It took me quite a long time to realize that there is no direct relation between the equity markets and the direction of the economy in the short run!

So, a family hobby of buying high and selling low has been now converted to a more serious calling – teaching and writing!

The equity market goes up when all the pundits say it will tank and vice-versa! That is the reason why historians like us have learnt the greatest lesson from history – ‘you cannot learn from history’.

Why did the equity market in India suddenly add a couple of ‘000 points to the Sensex? That is about 23% jump! Or the Dow Jones spurt 20% in 18 days?
Well here is a confession – I do not know! However, if you agree that the market came down from 21k to 8k, surely there was some reason why it could also go up from 8k to 10k in a short term.

Is it a bear rally? Is it a dead cat bounce?

Remember when markets are down investors, traders, analysts, all of them look for reasons why it cannot go up – exactly reverse of how they behave in a boom.
A couple of friends who give a classic signal – when they leave the market it is a great time to buy – have left the market. To me that is a fine signal.
And all uncles and aunts say they will be out of the market for 2 years – in cash if need be – to me it is a great BUY signal.
If I knew that the market will be lower – which means I am still expecting a capital loss – I would be in cash. The problem is I do not know.

The Equity market delivers!
I have not asked my friends who shifted to cash recently – how it feels to see their next 4 years from debt markets already delivered by the market in the last fortnight! Sorry guys, I know it hurts.
Some other friends are saying “I will want stronger signals – I will wait for the markets to stabilize”. I find that sad. Wait till when? 10,342? 11,673? 12,500?

I do not think they have an answer. And I keep asking myself – is that the smart thing to do?
This is like waiting to buy AFTER the market has gone up. Why? And in a market with statistics to show that the best return is the steepest one?
Do they forget investment guru John Templeton saying “I do not know anyone who knows anyone who can time the market?”
Other investors have been pushed to the limit. They say they’ve had it. They’re done with the stock market for good.
This funny dialogue reminds me of a graveyard / a crematorium – where everybody says “what is life – it could have been you or me….” And then going home and continue doing what they have been doing.
Less cruel examples is a hangover or the promises we make ourselves at the weighing scale. Aw come on, do not kid yourself. You will be here before long. Maybe when the sensex is at 16k – and perhaps on the way down again!
Bluntly what is your choice?

If you are an investor who is investing towards some goals, do you have too much of a choice?
·    Will real estate give you inflation adjusted, post EMI return in double digits? You got to be kidding!
·    What about RBI bonds with real returns in the negative territory?
·    Or will you be tempted by Income funds – guaranteed to give you sub-RBI bond yields in the longer run also?
·    Or in gold – which has returned pathetic returns in the past 29 years – but has ridden the current metal boom?

Like it or lump it, but if you have long term goals – children’s education, own retirement, etc. you have to be in equities – directly if you know how to or through good fund managers.
Cut all this. Your question is simple. “Should I buy?”
The answer is simple. Yes. You should buy – stick to good fund houses, do good asset allocation.
If you do a SIP remember you are putting only a small portion of your money on a monthly basis.

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One Response to “Cheer leaders are cheering once again…”

  1. Ravinder Makhaik on April 8th, 2009 at 7:22 pm

    Between the lines, you have spelt out the contradictions that the rising market and slowing economy are indicating.

    Yet the returns some of the stocks have fetched over the last fortnight are defying gravity.

    Nobody every timed the market right, why should it be me.

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