| Should you be investing now? |
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In this issue:
» Mantra for your investing success
» Is India's power plan really achievable?
» Ambani brothers' feud can hurt India
» Faber's innovative way to get us past the crisis
» ...and more!!
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"I should buy stocks before the markets run up." "I should sell stocks before the markets crash."
Are these thoughts worrying you while at work, or keeping you awake at midnight? If yes, congratulations! You are a normal human being who is driven by the two emotions of 'fear' and 'greed' when it comes to money-related decisions.
Indeed, these are anxious times for all investors. Nobody knows quite what to expect from the markets over the next few days, or even months. Will the Sensex continue its dramatic climb, as it has since March? Or will it take another staggering drop as it did in the week after the Budget was announced earlier this month? We don't know either!
So why invest in stocks at all, when things are so uncertain all around? And what does one really make of what's going to happen next given that the markets are an extension of the collective psychologies of all speculators and investors that make it?
The answer isn't simple, but we'll try.
See, whatever the experts on business channels say, you need to realise that the market is a highly inefficient place to be in. Stocks that you buy and sell are the same that are sold and bought by someone else. In this case, either you have the correct information about the stock and are subsequently buying or selling it, or the other guy is better placed than you to be selling or buying the same stock.
In simple words, what we mean to say is that when the market provides us with the right kind of opportunities, rather than acting on our own discretion, judgement, and knowledge, we often tend to do what others are doing. So where is the advantage? How do you find and act upon those wealth creation opportunities that others will realise later and by then you would have made your buck...safely?
The answer, we must tell you again, lies in you having full control of your emotions and investing in the right kind of stocks with utmost discipline. Keeping emotions out of the picture while researching companies and valuing their stocks is the best way you can identify the right kind of investment opportunities.
When intrinsic values (determined by business strength, earnings quality, management's long term vision) of fundamentally sound companies do not change but their stock prices come off by 10%-12%, there is only one thing you as an investor should do - take advantage of the irrationality that is prevalent.
After all, as Warren Buffett would confirm, great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause stocks to be misappraised.
Speaking at a meeting with power producers earlier this week, India's power minister Mr. Sushil Kumar Shinde said that the 11th five-year plan (2007-2012) target of adding 78,750 megawatt (MW) was on track. And then, he added that while around 80,000 MW capacity is under construction currently, the government would at least be able to deliver 65,000 MW capacity addition! So, while being confident on one side, he seemed to have suddenly remembered history of India power generation capacity addition (see today's chart of the day) and added an 'at least' to his promise.
Whether Shinde's plans are really achievable can be gauged from this chart that shows how dismal India's track record has been in the past. And given the fuel and equipment constraints that the power sector still faces, do we say any more?
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Data source: CMIE, Planning Commission on India
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| 02:33 |
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Apart from the clash of egos between the Ambani brothers, the feud between them has a lot to do with the fact that KG basin gas has great financial value. But they are not the only 2 parties whose interests are affected. It must be remembered that minerals within India actually belong to the government. Exploration companies are authorised by the government under a contract to find and produce these minerals. In the case of KG basin gas, the matter acquires a strategic importance given the acute shortage of oil & gas supplies that India faces. Little wonder then that the government of India has approached the Supreme Court to seek a stay on the Bombay High Court's decision to allocate gas to Anil Ambani's RNRL.
A path breaking event like the KG basin discovery could have gone a long way in building up our energy infrastructure and spurred a great deal of foreign investment into the sector. But the legal wrangling has not only delayed the utilisation of the gas, we also seem to be have lost a great marketing opportunity.
| 03:19 |
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India's largest software services company TCS surprised one and all yesterday with its stellar performance amidst the downturn in the technology market. The company declared a good improvement in its operating margins and subsequently its net profits. The management has attributed this to its cost containment measures like lower employee costs and increased utilisation.
What is more interesting is the management's view that its clients have become more open about pricing negotiations and much more certain about their IT budgets than they were a couple of quarters back. Nevertheless, it has sounded caution about the recovery in the manufacturing and telecom sectors where the cash-strapped clients are still floundering and deals are sporadic.
| 03:48 |
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Investment guru Marc Faber has come up with a rather innovative way to get us past the current financial crisis. He believes that firing half the government workers in the world will do the trick as it will shift the economic activity from the less productive government sector to the much more efficient private sector. This way, he says, the economy will become more dynamic and we will get past the crisis sooner. Is anyone in Delhi reading this?
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Data source: CMIE, RBI
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| 04:14 |
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Indian and other Asian markets had a strong last week on the back of a general improvement in the economic scenario. In India specifically, the onset of good monsoons during the past few days added to the cheer. The BSE-Sensex closed the week up by around 9%, thereby topping the gains in other key world markets except Russia whose benchmark index rose by 10%.
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Note: Country names represent their respective benchmark stock indices;
Data Source: Yahoo Finance, Gold.org, CNNfn
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As for the performance of sectoral indices during the week, stocks from the real estate sector emerged as the favourites with the BSE-Realty Index ending the week higher by 18% (after declining around 17% during the previous week). While no indices saw a negative trend on a week on week basis, stocks from the FMCG and healthcare sectors gained the least.
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Weekend investing mantra |
"In any business, there are going to be all kinds of factors that happen next week, next month, next year, and so forth. But the really important thing is to be in the right business." - Warren Buffett
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| 6 Responses to "Should you be investing now?" |
Pravin Patel
updated Jul 20,
2009
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No, it is time to sell.
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praveen
updated Jul 19,
2009
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that mantra is really difficult to follow, we should use sip in ETF in a big way to have a continuous investment in the market.
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Vivek
updated Jul 18,
2009
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Its interesting to know that still jobs in public sector are still growing much faster than that in private sector. I was under impression that public sector jobs are on decline.
Is it possible to get an idea which particular sectors within public sector are creating more job opportunities? My guess is financial sector.
Does Indian govt release data on job market the way it is done by US? Where can we get this data?
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Franklin
updated Jul 18,
2009
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I believe 50% is too less. Maybe they should fire 75% and the remaining 25% will have something to do afterall instead of dozing off..
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sps malhotra
updated Jul 18,
2009
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The markets more often then not work based on people sentiments as also they are leveraged by the other markets.However,the key player still remains the speculator.It is the speculator who gives the direction and controls the stocks that he wishes to.How do you explainone stock of realty rising while all others in the same group are down.
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Snehal U. Kotawar
updated Jul 18,
2009
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Yes ,Your information is very useful to take the decision of investment.
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