|»5 Minute Wrap Up by Equitymaster|
On This Day - 27 AUGUST 2011
Sensex below 16,000. What should you do?
In this issue:
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We recently came across a newspaper article explaining and advocating the philosophy of 'value averaging' in such times. In simple terms, value averaging subscribes that investors should allocate some money towards equities every month. The allocation of the money should be based on the movements in the market. So the investor decides on a total amount that he wants to invest in the equities. He then allocates a certain percentage of this amount in the markets. In the months when markets fall, the investment is more. And when markets are rising, the investment is less. As a result, the investors are theoretically buying during falls.
It sounds like an ideal philosophy to have. Buy at lows and sell at highs. But the theory of value averaging may not be very easy for an average investor to practice. For it can be very difficult to judge the proportion by which investments must be increased or decreased every month. Instead the easier thing for investors to do would be to invest in fundamentally sound stocks as and when they are trading with reasonable margin of safety in valuations. And to accumulate the stock whenever valuations become more attractive due to price falls. But the important thing to note here is that the investor has to be patient. He /she cannot panic during falls but instead has to invest more. And when markets rise, the investor's patience gets rewarded in the form of huge returns.
However, the results are hardly surprising. The mushrooming placement agencies and job portals are a live testimony to the recent trend. The improving economy and abundant opportunities have become the biggest challenge for HR. With changing times, 'survival of the fittest 'applies not just to employees but stands true for firms as well. Because firms that face serious retention issues and talent flight can hardly go far.
What are the options left for the government? There still exists a big gap between the local fuel prices and global crude oil prices. Another fuel price hikes may help government to cut its swelling subsidies expenses. The government should also take the right steps to curb the supply side constraints to tame the stubborn inflation. This would help maintain the growth momentum, which in turn help lessen the fiscal deficit.
Indian stock markets fell for the fifth straight week and were down by 1.8%. This was largely due to the global concerns growing ahead of US Federal Reserve Chief Ben Bernanke's speech regarding quantitative easing. Amongst the other world markets, France was the maximum gainer (up by 2.3%) followed by China and UK. However, Singapore managed an increase of only 0.5% over last week.
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