I had a long, funny and sometimes heated discussion with an equity analyst. Not that he is a great analyst – nor is he a bad one. However like most fund managers he believes ‘equity returns are a function of timing’.

He says…’see if you had invested Rs. 100 in the index in 1980, it would have been worth Rs. 4000 in 1992 – a fantastic return’. However after that the market has not given good returns. So at 4k YOU SHOULD HAVE BOOKED YOUR PROFIT. May be you could have spent the money..BUT YOU SHOULD HAVE SOLD AND BOOKED THE PROFITS.

He also said to be in equity markets…you need to be a little active.

He also said ‘ if you remove the period 2002-2007, equity return would be below bank returns’.

One more of his statement is ‘See from 1980 to 1992 you got 40 times, but 1992 to 2002 market did not go anywhere, so my stand is vindicated.

What is scary in ALL these statements is they are made with perfect 20/20 hindsight. Let us say from 1980 to 1983 if your money had gone up 3 times – would you have sold? That is the question to ask. Not whether at 4200 (in 1992) would your money have gone up 42 times – that is a no brainer. Similarly to be able to shift from equity markets and then comeback to equity markets is a fantastic idea. However like the late Sir John Templeton said ” I do not know anybody who knows anybody who could time the market”.

It is a fool’s paradise to think you can get the top and the bottom of the market – with your full portfolio. For example at the 21000 index I did sell some shares of L&T, Tata Power, Hdfc, Cholamandalam, Kotak Bank – however that would have been a small part – perhaps 10% of the equity portfolio – and moved it to cash. However I did not buy back these shares when they were down – instead invested in a new set of companies.

People like me who are about 90% in equities in the best of times drop to 70% – CANNOT react to news like this…except to feel bad about such ‘gyan’ being distributed!

‘Booking of profit is a must’ he says.

To me all this is scary.

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  1. i also used to keep the stocks just like that without booking profits hoping that it goes only in one direction.

    after 2008 i am learning to control my greed and doing regular profit booking.

    i am selling 20% of quantity for every 25% rise in price. this i do for 3 times in a stock and i hold the stock free of cost in my portfolio and i grow along with the stock. however need to monitor at regular intervals.

    i got this idea of profit booking from one article on economic times.

  2. As subra rightly pointed out, no body can time the market with full portfolio. I feel valuations of stocks decide the price to exist or enter, but most of the time they trade at irrational values. if one picks stocks with good management at good valuations he can hold them for longer periods. I think wealth can be made only by investing long..really long.

  3. The issue is we still dream of the past dream run of the stock market.

    The growth we have seen from 1980 to the 2000s is due to the general evolution of markets and the world economy. I’ll bet if you take any market across the world (barring Japan of course), they’d show tremendous returns.

    My opinion, on the individual stock level, one should see fundamentals,
    and for the macro level,one should compare periods, say at every 10-year intervals on a rolling basis.

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