How do you think the markets will be asked a Journalist….

Mr J P Morgan thought about it and said: “Uncertain”.

I would have said “Volatile”.

There is a Tamil saying which says “Trying to take bath in the ocean after the waves have stopped”. “Trying to enter the markets after uncertainty and volatility are over is exactly like that”.

We all love certainty, right?

When things seem certain, our job looks secure, our company is doing well and THE future looks bright we embrace risk taking!  When things seem uncertain, we are not sure who will win the election and it is difficult to believe that things will improve, we PANIC. You make more money buying when a company looks bad, and less money when a company looks good!! Of course there are some exceptions, but that is THE RULE.

Is there something called a certain environment when it comes to investing? No. I have not seen that. When the Index was at 4000 we were all sure it would go to 5000. That was the time when Mazda Industries was the HIGH flying share in the BSE (there was no NSE!). EXACTLY when you cannot see risk in the market, you can be sure it is lurking somewhere in the bushes. It is as clever as a tiger. It is ONLY our view on risk that keeps changing. Suddenly it is as big as a Rhino and suddenly it is as small as a scorpion. It is always there.

God is in Heaven and all is well with the world. NaMo is doing amazing things, there are green shoots, sales are increasing, EPS is going up, PE will adjust, but the market will reach 38000 in one year. This is the consensus. Bull-shit.

If the recent past is a calm market with lots of good news, WE ASSUME THAT this will continue ad infinitum.

If the market had problems, and volatility, we would have felt less uncertain. Volatility over the last year has been low. In India and in the US – which is seen as the general world view!

What are the assumptions today?

SIP will continue to grow at Rs. 300 crores per month – i.e. 5300, 5600, 5900 crores per month.

Earnings will go up (it cannot remain sideways for long, right?)

FII will invest in India (hey, where else will they go? Pakistan? )

Tax cuts are coming – remember this is the election budget ….?

Demonetisation and GST will dramatically improve the money with the government…

Deficit is down….

AND THEREFORE…the same things will continue to happen. Right?

So 2018 will have to give us 27% p.a. return in equities.

WRONG. What is said above is true. Full facts. However we have no clue what the next one year will look like.

US could increase rates more aggressively. US tax rate cut will improve PE and money could flow there. SIP could stop if there is some bad news. GST collection is poor.

A scam could break out – remember the algo scam of NSE is still not settled. The Jignesh scam is not yet resolved. What about another couple of hidden scams? No clue, right?

The risk  is that some of the recently strong data will begin to weaken soon. The base effect of inflation will make inflation data look bad. Crude prices could go up. Then suddenly you wonder whether there was really ZERO risk?

Do not think that can’t happen. Take a look at any cycle. Good news is followed by bad. Weak data follows Good data.

Exactly when we think “this time it is different”…risk happens.

 

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