I started investing long long ago. All right, so long ago that the Sensex was not born. Also I have no clue why an investor needs to look at the sensex. IN 2007 I sold shares like LnT, Kotak bank, Cholamandalam, Tata Power, and a couple of tech shares. This has NOTHING to do with the index being at 21000. It was purely a feeling that Tata Power could never have a PE of 100. Gimme a break.

I bought back Tata Power, Chola, and Kotak. However, I later exited Kotak bank at a decent profit.

To me investors looking at the Sensex made no sense. Even now, I was sitting on some cash and decided to buy Bhel, Tata Power, Vedanta, Motherson Sumi, and a bunch of Psu shares.

The Index represents a bunch of shares that I may like or not like! Imagine adding up all the PE and arriving at the “market PE”. Honestly, I have not seen anything more stupid. I am sure that the market is currently over-priced, but that did not stop me from buying Bhel, and Tata Power at their life-time lows. It did not stop me from buying JSW, and Vedanta. In the case of Tata Motors, I have not done anything to my position – and I have no clue what to do. Of course, it has no PE to talk about!!

I also do not like asset allocation beyond a point. I have some money in debt instruments -I guess it is about 10 YEARS household expenses. This is over and above another 10 years expenses in PPF. At my age this is more like “for the rest of my life”. I have current income from training, dividends, my wife has rental income, and thus all the remaining money can go into Equity. Another way of looking at it is to say “the need to take risk has gone away” – so I can go to full debt like a debt mutual fund growth plan. I prefer sticking to equities, as always.

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  1. Actually what you said is true sir. It is really bad idea to look at Index. Even worse is weightage of just 2 companies in 50 is 25 percent of Index and 6 companies of the 50 in Index is 52 percent of Index. But we have to do it, sir because of herd mentality. Whether we like it or not. Because..

    (1) FIIs follow Index. 25 percent of Indian markets are FII investments.
    (2) Index stocks constitute a lions share of total market cap.
    (3) 60 percent of all funds invested are into Companies that constitute the index. Blindly..
    (4) Value stocks take time to unlock their value. But once they are part of index, they unlock like a catalyst.
    (5) It is hard to beat the index. All said and done.. A very few fund managers have been able to do so.

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