|»5 Minute Wrap Up by Equitymaster|
On This Day - 18 FEBRUARY 2011
2 things to avoid when markets are down
In this issue:
-------------------------- How to Profit from Futures? Ask Asad himself! --------------------------
The first one is to "not start bottom fishing". Most investors who think of themselves as rational, start calling the bottom for different stocks. They start looking at all available data to identify when the stock will bottom out. They prefer to stand on the side of the road before picking up any investment. More often than not, these investors end up not investing at all. They miss all good opportunities. The truth is it is almost impossible to call the "bottom" for any stock. It is better to have a valuation band in mind rather than having a bottomed out stock price in mind. Invest when valuations are low so as to not miss out an opportunity.
The second thing is to "not sell in panic". This is something most investors tend to do. When they see prices of stocks hitting new lows, they tend to panic and sell their investments. But at such times they should actually question as to why are they selling? If there is nothing wrong in the company's fundamentals then just selling for the sake of it, just doesn't make sense. Instead such falls should be viewed as an opportunity to buy more of the good stocks.
Markets are driven partly by fundamentals and partly by emotions. When emotions run at a tangent to fundamentals, and the markets fall, it just indicates a good buying opportunity. It would do well for investors to treat market falls as an opportunity to pick up their favorite fundamentally sound stocks.
Over the next couple of decades, India is expected to see an enormous urban transformation. Many Indian cities would become larger than many countries, in terms of population size and GDP. However, India's spending on infrastructure lags way behind that of China. While we spend a mere US $17 per capita on urban infrastructure, China spends a whopping US $116. If not for the poor infrastructure, our economy would be growing higher by 2%.
In terms of a cost differential, there is not much of a change, as an Indian employee working in the US would be paid the same salary. Onsite employees are also billed higher to clients. But, there are many challenges on the campus recruitment front. In Indian engineering colleges, these IT majors get to pick the cream of the crowd. Plus, India produces 600,000 engineering graduates every year. However, the pool of students in the US is much smaller. And these IT firms do not really have much brand value on US campuses. While, the Indian Big 3 are making efforts on this front, we believe it will still take a lot more time and money to pay off.
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