Why Moody's Rating Downgrade is a Strong Sign to Buy Stocks

Nov 8, 2019

Tanushree Banerjee, Editor, The 5 Minute Wrapup

My views on the credibility of rating agencies, especially the global ones, is no secret.

I wrote to you about how poorly the insiders at Moody's rate their rating approach back in 2009. And again in 2015.

In an interview, Moody's former Managing Director, Jerome Fons, had called the rating agencies - Standard & Poor's and Moody's - as worthless and worth ignoring.

But even years after subprime crisis unfolded in 2008, regulators and investors all over the world continue to rely on these rating agencies.

Mr Fons is not the only one who is appalled at this situation. I am too and many others like me.

Nevertheless, the views of the big rating agencies, continue to find takers.

Unfortunately, they are typically too late to signal either a downside or an upside.

You can find the latest example of this in today's papers. Moody's downgraded India's rating from stable to negative.

Ironically, if you track Moody's record of rating downgrades you'll find it works like a 'inflection' indicator.

Think of it as the Cocktail Party Indicator. When everyone at a cocktail party shares stock tips with you, it signals a bursting of a bubble.

Similarly, the Moody's indicator, is typically very late to caution on risks. So late in fact, that now it is time to look forward to the upside.

Investors who take Moody's downgrade of India too seriously, will either suffer losses or miss the bus on the upside.

If you don't believe me, take a look at this chart. What do you see?

Terrible Track Record of Rating Downgrades

Every time, Moody's has slashed India's rating below the 'stable' category, the economy has bottomed out.

And a stock market boom followed.

So, smart investors who bought stocks after Moody's rating downgrade in 1992 and 2002, created life-changing wealth for themselves.

You need to do the same today.

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Take advantage of the negativity in the stock market and buy the best stocks that are poised to ride India's economic recovery.

The Moody's rating downgrade will not affect the Rebirth of India at all.

It will also not affect my pick of the 7 best stocks in the market.

The ratings downgrade could only serve my readers, like you, to buy these stocks at valuations that are favourable.

And don't be in a hurry to see markets soar.

Stay assured that the Moody's rating downgrade is a final indicator of an inflection in India's economic and stock market potential.

It is a sign to buy.

How have you reacted to such rating downgrades earlier? Share with us...

Warm regards,

Tanushree Banerjee
Tanushree Banerjee
Editor and Research Analyst, The 5 Minute WrapUp

PS: Dear reader, you can ignore the negative news surrounding Moody's rating downgrade. Instead, I recommend you consider buying my top 7 stock picks for 2020. Get the details here.

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1 Responses to "Why Moody's Rating Downgrade is a Strong Sign to Buy Stocks"

Paresh shah

Nov 8, 2019

Moody's is as you have said totally irrelevant. It is always outdates and has a backward focus. But what is current valuation of the market and certain marquee companies which form the index. While the change to mutual fund investing is certainly a positive, I am not certain whether they are sophisticated enough to respond appropriately to the market.The marketing gimmicks of staying invested and continuing with Sips may be counterproductive.Frankly I am currently worried about the valuations and have paused my Sips.

Equitymaster requests your view! Post a comment on "Why Moody's Rating Downgrade is a Strong Sign to Buy Stocks". Click here!