Let us look at this imaginary conversation between my client and my amazing ability to predict markets.
C: Hi Subra, Mr. SK of CL Bank recommended you very highly saying you have good stock market skills, so would you be able to manage my portfolio?
S: Actually I have good research skill – or so I hear from some bankers, but whether I can manage your portfolio to your satisfaction, I have no clue, but yes we could make a start.
C: Subra, I have some money to invest…what return do you think the market can give me?
S: Gee, I do not know..but I did not expect to get more than 250% like I got in the current year…but it will obviously be lesser
C: but Subra how much lesser can it go? can it go to 20%?
S: I have no clue sir..
C: I will take a punt please invest Rs. 25000 for me..I really have a long term view Subra. April 1992.
S: April 1993 – Sir market has done very badly and about half your money is gone – it is now worth about Rs. 15,000, about 10k down.
C: BUT SUBRA YOU NEVER TOLD ME THAT IT COULD FALL BY 50%.
S: Problem is, I have been in the markets for 13 years and the market NEVER fell by 50% – so a dumb guy cannot imagine too much.
C: Subra, how much further loss will I make this year? can it fall another 50%?
S: Gee, I do not know but I do not expect a bad year to be followed by a worse year…so it might not be that bad. I think you should break some fixed deposit and invest more, but honestly I have no clue how the market will behave. I have some great shares that I HAVE PERSONALLY BOUGHT, but I will leave it to you . A new emerging company called Infosys has an IPO, and I have bought Hero Honda, Bajaj Auto and my old favorite Asian Paints. You could buy them too.
C: No subra i do not want those..buy me something new..but no I am not adding any more money now.
S: March 1994: Sir your portfolio is up by about 76% – about 11% more than the sensex..I hope you are happy…
C: Happy that I did not lose like last year, but Subra I am still about Rs. 490 shy of my original amount…
S: Yes..and you could add some more money now, I have done that and I added some Coromandel, Cholamandalam, Tata Power, Tata Steel, Ta Mo, LnT, and Supreme.
C: but Subra you are investing even the market has gone up 78%!
S: actually my portfolio was up by about 100%..and yes I keep adding – as I earn more I add more
C: but Subra you have almost always been wrong about the market.
S: yes sir, I have no clue how to predict the market, I just do some small micros and talk to a couple of people
C: Subra where do you think the market will be in 1998?
S: Sir I do not know but I am not sure whether it will be so bad as 95, 96 and 97..I can still say I do not know.
C: Subra if I had not listened to you and listened to my dad, my money would have done well in PPF.
S: Yes, technically, that is true, but in 1993 you remember P Chidambaram made dividends tax free, and I have shifted to an almost whole equity portfolio – and I am no longer filing an IT return for my dad whose portfolio is worth about Rs. 30L.
C: You have Rs. 30L of your retired father’s money in equities!!!
S: and I have also invested some of my mother’s money in a new product called – equity mutual fund ..and I invest in them regularly – whenever my mother has money I buy direct equity or equity mutual funds – she is also headed for that 90% in equity markets.
C: Subra you are amazing. You have no ability to predict markets, and you keep putting your hard earned money, your parents money, your sister’s money,…clients money, cousins money into shares. At some stage this has to be sold no?
S: I have no clue, my business of share markets is not doing well, but you know our corporate lending and borrowing is doing well, private placements are doing very badly, our business is not growing…but we still take home a salary…and yes I am investing. By the way Mr. Client, I never predicted the market. Look at our conversation – I have consistently said “I do not know” but you decided to hear “40% every year”. I did not say anything. I just said ‘this is what I am adding’ – you decided not to increase equity allocation.
So in 2002..I can tell you that one day the markets will go beyond the 2000-3000 range. I have no clue, it may even DOUBLE IN 5 years time – yielding a 14% return, who knows where the Index could be in 2008? I have no clue. It could be even as HIGH AS 6000. If it does cross 6k..I would be thrilled.
C: No subra, thanks but I do not wish to add more to my portfolio. I am happy that my 25000 has increased to 35000. I read somewhere that in the index if would have remained at 29000 and technically you have done well. Sorry but I love my debt funds which are giving me 14% p.a. return – far far superior to your pathetic stock market.
S: Sir, I am 34 years of age, and I will sell when I am 80 years of age. I can promise you (based on American experience) I will get the following:
- A positive real return in equity markets
- An amazing willingness to keep adding to my corpus
- Reinvesting my dividends
- If I get an opportunity to buy more at HALF THIS INDEX, I will be buying MORE, not less.
C: What a joke Subra…what a joke you seem to be LOVING THE BEAR MARKET.
I sat down wondering…did I really love the bear market? and I told him: If you are still in your saving and investing years (which means you are between 23 to 60), a bear market is a gift from the Gods (your Xmas and Diwali came in early) — and the longer it lasts, the better off you will be. Instead of running from the bear, you should embrace him. Rejoice the opportunity to buy. Don’t worry about yesterday – tomorrow is going to be awesome.
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