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Can this bull-run make you poorer?

Feb 16, 2015

In this issue:
» India reports negative WPI in Jan 2015
» Jim Rogers warns about the growing global economic risks
» Global central banks are playing a dangerous game
» and more....

00:00
India growth story is back in focus. There are many theories floating around about the future of the India economy. Some believe the economy is geared to enter a phase of cyclical and structural up cycle. And this could result in a multi-year bull market. We are already seeing these positives being factored in the stock prices.

How many years the bull-run will last no one knows. But even in a multi-year bull run buying anything at any price is still dangerous. Bull runs are never linear upward movements. They are always marked by periods of correction.

Anyway, today we are not going to discuss the duration of bull markets. Or how much wealth you could possibly make. When there is too much optimism around, we rather play the devil's advocate and remind you the cold, hard truth.

Let's go back to the previous decade. We had a solid multi-year bull market, didn't we? So many stocks went up multifold. The wise, intelligent investors were richly rewarded. But well, then we had the market crash in 2008, which continued through 2009. All the wealth that was built during the years of the bull-run got wiped out during this bear market. The retail investors were the worst hit. And this is not an anomaly but more like a norm. It seems most small investors have a tendency to be late entrants to the bull runs. They tend to sell their winners prematurely. And when the bull-run finally ends they are left with the dogs. So it ends like a game of illusion for them. The money comes from thin air and disappears just the same way.

And then, of course, you can curse the broker, the global economy and the planets. But the money doesn't come back. And then when it is really to time to scoop up all the good stocks when they are selling at attractive valuations, you may withdraw from the stock markets altogether and pledge never to return again. Of course, now when you look back you may think you lost so many great opportunities since the markets remained broadly range-bound for quite a few years.

Our question to you is: What are you really looking for: quick bucks or lasting long term wealth? Are you prepared to take your money home safely when this bull-run finally ends? What are you doing today to be a wiser investor than during the previous bull-run? Let us know your comments or share your views in the Equitymaster Club.

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02:00
  Chart of the day
The wholesale price inflation data is here and suggests a deflation in the month of January 2015. With oil prices on decline, India has witnessed much sought relief in the overall inflation levels in the economy. The WPI inflation has come down to a five year and half low of negative 0.39 %. However, as an article in Economic Times highlights, a negative inflation data has given fresh reasons for economists to worry. This is because this could suggest an overcapacity and weakness in the pricing of manufactured products. One must note here that the manufacturing inflation has now come down to 1% and could drag retail inflation below the levels desired by RBI. Does this make a valid reason for further rate cuts by RBI? Before rushing to conclusions, one must note that food inflation still remains at 6 months high. And much of the downtrend in WPI is due to lower crude prices, which is quite volatile and could play spoilsport on the feel good factor about falling inflation.

India's WPI data suggests deflation


02:50
In the previous editions of The 5 Minute Wrapup, we have been warning investors about the increasing risks in the global financial markets and valuations running ahead of fundamentals in the Indian equity markets. The view is consonant with what legendary investor Jim Rogers has to say. Let's hear him out on the Indian markets first. He believes that Modi's rise to power has done more good to stock markets than the Indian economy on the ground level. And if the wait for some tangible reforms and recovery gets delayed, the markets may witness a sell off by foreign investors. His other concern is the amount of money that the markets are sloshed with, with central banks around the world going for unabashed money printing that is working as a happiness inducing drug for now. However, when the soberness strikes, the global markets are likely to see themselves face to face with crisis of much bigger proportions as central banks get loaded with huge debts. We are certainly keeping these risks in mind while making recommendations. Are you?

03:50
The central banks around the world are playing a dangerous game - reckless money printing and currency wars. The world has been a witness and victim to the impact of US expansionary monetary policy since quite some years now. Last month, Swiss National Bank gave the world a glimpse of potential volatility when it decided to abandon a cap on its currency. As suggested in an article in Business Standard, the risks are only going up. In the European QE operation, Germany in its refusal to follow a risk-sharing arrangement in bond-buying, seems to have increased risks for itself. As Germany's debt paper remains the most expensive, whenever a recovery happens, it will be German government bonds that will face the highest risk. Other central banks with huge bond holdings will not be spared either as inflation rises. What is more amusing is that it will be these clueless and crisis ridden banks that will drive further monetary policies. This certainly paints a very scary picture for the global economy. We are hardly surprised that Marc Faber 's choicest asset class for short selling is 'central banks'.

04:30
The Indian stock markets shed some of their early gains but continued to trade above the dotted line. At the time of writing, the BSE-Sensex was trading higher by about 41 points or 0.2%. Barring oil and gas, banking and consumer durables, all sectoral indices were trading in the green led by the stocks in the auto and FMCG sector. Mid stocks closed in the red (down 0.03%) while small cap stocks ended on a positive note (up 0.06%). Asian markets were trading mainly in the green with stock markets in China and Japan leading the gains. European indices were trading on a negative note at the time of writing.

04:45
 Today's investing mantra
"You don't have to be a genius to invest well." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Ankit Shah and Richa Agarwal.

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5 Responses to "Can this bull-run make you poorer?"

Shrinivas Moghe

Feb 17, 2015

I feel that, if you have invested the money which is lying spare with you, in equity, your chances of getting over excited or over panic, are less. You can wait for the right time to book profit, if you can afford to stay invested. Hence irrespective of what amount you invest in equity, the criteria should be how much one can manage to wait. Your quantum of investment should depend up on this.

Like 

deepak mitra

Feb 17, 2015

suppose i am wise enough to invest properly in time of consolidation and now sitting on good profit. bull run will not last forever and the dilemma is when to liquidate holding and book -profit

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C K VAIDYA

Feb 17, 2015

I find it ironic that in 5MinWrapUp, you talk of early selling leaving retailer investors poorer and also of 'global risks of much larger proportions apart from risk of foreign capital flight if Modi Govt does not improve economy on the ground.
Based on your first point, retail investors should remain invested and not 'book profit' since they would miss the subsequent rally whereas based on your subsequent cautionary advice, retail investors should reduce their risk by reducing exposure as the index heads for higher terrain.
Do you think this can lead to confusion in the mind of a retail investor?
I personally believe that both Indian and foreign risks are increasing by the day(with every increase in indices) and continue to sell on every rise. As a result, I have sold at prices substantially lower than those prevailing today but I think its safer to do so than risk a sudden drop.

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sachin8778

Feb 16, 2015

I am in much better position to benefit from this bull run, am adequately invested and will ensure to maintain predefined asset allocation.

Like 

Ananth

Feb 16, 2015

Can we consider political stability. If so how long? unless and otherwise some thing beyond imagination is it 5 years?
Can we consider coming rain fall season Is their any impact? If so to what extent
Can we consider international economic situation. The impact to what extent?
Their are so many so many and so many
Still the market is thriving as I see for the last 4 decades Thank you

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