|»5 Minute Wrap Up by Equitymaster|
On This Day - 23 AUGUST 2010
Isn't the govt. interested in retail investors' interest?
In this issue:
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It's very ironical then that the government itself wants some of the key men managing India's policymaking to not last more than a single term. And that too, a smaller term of three years! The SEBI chiefs are a case in point. First it was Mr. Damodaran, and now it's Mr. Bhave.
The former was not re-appointed after finishing his 3-year term that ended in 2008. Now, the government is repeating the process. It is all set to start the process of selecting the next SEBI chief. This gives a clear signal that it does not favour a second term for Mr. Bhave.
This is particularly sad given that Mr. Bhave has done some good work at the helm of affairs at SEBI. And his good work was largely to provide more safety mechanisms for small investors against the might of companies and mutual funds. But probably this has brought him in the eye of storm of these biggies - companies and mutual funds - who have occasionally taken out knives and blamed Mr. Bhave for taking sides with retail investors.
And we know whose side the government is more prone to take! After all, its habit of not reappointing well-performing men points to something fishy in its thought process.
Anyways, what do you say? Do you think Mr. Bhave deserves a longer term as SEBI's chief? Share with us, or post your comments on our Facebook page.
But once the industrial revolution came along, followed by the information revolution, population size did not matter much. First the Europeans, then the Americans leveraged technology to multiply their economy's size. Now, while China is again catching up, India still has a long way to go!
This also means that one must tap the experience and knowledge of India's research institutions, and also involve them in policymaking. In fact, as far as research and development is concerned, Indian companies are a shadow of their developed market peers. Indeed, Indian companies need to have a strong vision of where they are expected to head in the longer term, and not get carried away by quarterly numbers and the need to live up to short term expectations.
So, are the Indian markets ripe for a correction? And what should you as an investor do?
Well, the answer lies in valuations. As we stand now, the overall valuations of the Indian markets are at high levels. And this makes the markets vulnerable to a correction.
But then, the answer to this uncertainty does not lie in selling all stocks and sitting on cash. The answer lies in the strictness with which you select stocks. Investing is a continuous process and like you need to be prepared for a bull run, you also need to be prepared for a correction (and not fear it). Having safe and sound companies in your portfolio, which you believe will do well in the long term and across market cycles, is the way to go.
The very proof of such negative sentiment is the RBI's refusal to grant licenses to real estate players. Even if that means going slow on the government's financial inclusion plans. We believe that unless we have a more regulated real estate market, such a cautious approach is warranted.
A new discipline called behavioral economics studies these limitations. One such limitation is 'overconfidence'. It basically says - most of us think that we are 'better than average' in most things. Also, our sense of the probability of events is out of whack with reality. Richard Thaler, a leading behavioral economist, writes in the New York Times how chief financial officers and chief executive officers of major US companies make poor forecasts.
When captains of industry have difficulty in predicting the business environment and are also overconfident about it, is it any wonder stock analysts are no different? It is for this reason that investors must always seek a margin of safety in valuations while making their investment decisions.
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