Free Reports

The Cure for Stock Market Depression

May 12, 2016

In this issue:
» Mutual Funds betting big on IPOs
» Gold has its best quarter in last 30 years
» ...and more!
0:00
Devanshu Sampat, Research analyst

Well, this is embarrassing to admit...but I hate facts and figures. They're so boring. They make me yawn and my eyes heavy.

As an equity analyst, though, my daily diet consists of a steady dose of them. You gotta do what you gotta do, right?

But every once in a while, there comes along a set of numbers that gets me totally thrilled. The kind that gets me up from my seat, pacing the room, amazed at what goes on in the circus of the stock market.

I stumbled upon such a statistic recently. I was researching stock prices going back to 1985 and all the market crashes since then. And guess what I find?

Over the last 30 years, it has taken an average of just 1.8 years to go from the depths of a stock market crash to the lofty pinnacle of a market high.

And wait till you hear this next bit...

The BSE Sensex's average gain during these periods was 165%! That's more than two and a half times your money in less than two years! Talk about gain after the pain.

So even if you buy early in a bear market and see your stocks go further down in the short term, there's more than enough gains to be had from a long term perspective.

Here's the complete lowdown:

Date when market hit a high Time taken to swing from depths of previous crash to the high (years) Gain in the Sensex
27-Feb-86 1.2 143%
09-Oct-90 2.5 300%
22-Apr-92 1.2 367%
16-Sep-94 1.4 127%
05-Aug-97 1.5 61%
11-Feb-00 1.3 115%
14-Jan-04 2.3 138%
10-May-06 2.0 180%
08-Jan-08 1.6 134%
05-Nov-10 1.7 157%
29-Jan-15 3.1 96%
Average 1.8 165%

Source: Equitymaster, ACE Equity

Now that's an exciting set of statistics!

So here's the thing. I know falling stock prices are usually an equity investor's biggest source of pain. And a market crash? Well, that can cause outright depression. It can paralyze existing investors and scare away new investors.

But down in the depths of a stock market crash, when fear rules and everywhere you see is red, remember these numbers. Because I believe they are the ultimate cure for stock market depression.

Now no one can predict tops and bottoms. But as far as such market volatility is concerned, we have devised an intelligent system based on value investing guru Benjamin Graham's insights that helps us take advantage of it. It helps us pick stocks when they are cheap and sell when they are expensive, and has been significantly outperforming the markets since the service's inception in February 2014.

Do these insights leave you better equipped to deal with your emotions during a market crash? Let us know your comments or share your views in the Equitymaster Club.


--- Advertisement ---
Profit From Junior Blue Chips...

We have released our latest Special Report on the best of the best small caps - Junior Blue Chips!

Yes, we believe Junior Blue Chips possess the high growth potential of small caps along with the stability of blue chips.

That is an amazing combination every investor would want in his portfolio.

And the best part is you can get this report for FREE!

Just click here to know how...
------------------------------

2:36 Chart of the day

Is it okay for institutional investors like MFs to go big on IPOs? IPOs, as we all know, favor the issuers more than they favour the buyers. Warren Buffett has been heard saying that out of the thousands of stocks out there, it is difficult to imagine that the most attractive are the ones where an informed seller is offloading shares to an uninformed buyer. Our own experience suggests that majority of the IPOs are very expensively priced and leave no money on the table for subscribers.

Consequently, we were a little surprised after looking at today's chart of the day. It highlights how much of the percentage of allocated shares have been snapped up by the mutual funds. And it is indeed a very healthy number. All the recent IPOs have seen mutual funds snap up at least 50% of the shares allocated to them by way of anchor investing. Anchor investors are typically big money investors who are called on to buy shares ahead of the IPO as to inspire confidence in potential IPO investors. For knowledgeable, well informed professionals like the money managers to get lured by the temptation of investing in IPOs is a little perplexing to us.

Mutual Funds betting big on IPOs

Mutual Funds betting big on IPOs


3:50

Gold no doubt is on a tear. In fact, the March quarter was the best quarter for gold in last 30 years. And if billionaire hedge fund manager Paul Singer is to be believed, the rally has only just begun. And what does he attribute this observation to? Well, he is of the view that world's central bankers are completely focused on debasing their currencies. And therefore if investor's confidence in central banks' judgement continues to weaken, the effect on gold will be very powerful.

Worth pointing out that Singer joins Stanley Druckenmiller and other legendary investors in a long list of people who are now beginning to increasingly veer towards the yellow metal. As far as our own views on the issue are concerned, we have always maintained that we see gold as a very important inflation hedge and therefore, one should have gold in the portfolio so that it comprises no less than 10% of portfolio value. Therefore, this may be a good time to take exposure in the yellow metal if one hasn't already yet.

By the way, Apurva Sheth, our colleague over at Daily Profit Hunter, recently did an interesting chart based comparison between the benchmark index Sensex and Gold and has come to some very interesting conclusions. He has made the case for changing one's allocation based on the ratio between the two.

4:48

Indian markets are trading strong today and the Sensex was up around 130 points at the time of writing. BSE Mid and Small Cap indices were also amongst gains, edging higher by 0.4% and 0.8% respectively. Amongst sectors, consumer durables and realty were seen attracting the maximum buying interest.

4:56 Today's Investment mantra

"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Devanshu Sampat (Research Analyst) and Rahul Shah (Research Analyst).

Today's Premium Edition.

Indian Tyre Industry: A Tough Road Ahead

The road gets bumpy for Indian tyre makers.
Read On...Get Access

Recent Articles

Which Chips Do You Want to Own - Black, White or Blue? December 9, 2017
The best way to retire wealthy - Buy real blue chips over poker blue chips
If You're Not Looking for 'Excitement' but 'Big Returns' from Stocks, This Is for You December 7, 2017
One does not have to necessarily invest only in 'exciting' stocks to become wealthy.
The Big 'I' That Can Topple the HDFC Banks and Wells Fargos of the World December 5, 2017
A risk that cannot be ignored in even the biggest and well run businesses.
If You Can Read your Child's Annual Report Card... You Can Have an Edge in Investing December 2, 2017
Read a company's annual reports as you read your child's school report card...

Equitymaster requests your view! Post a comment on "The Cure for Stock Market Depression". Click here!

2 Responses to "The Cure for Stock Market Depression"

SJ

May 13, 2016

There you go Rahul Shah and Devanshu Sampat! A known phenomenon backed by solid facts. Good job! :)

Like 

Gopalan

May 12, 2016

One of the BEST analysis seen in recent times. Many thanks for the insight. Over a period of time I have been perfecting Tech Analysis and now feel very comfortable. However a high knowledge of fundamentals is also necessary since limits in the market to a fairly large extent to know limits of upper and lower movements like we saw market (NIFTY) touch PE 10 in Oct 2008 and turnaround, after having collapsed at PE 28 in 2007 ! Masterstroke that ! So coming back, your analysis will now set the time limit(s) also. Best wishes for many such insights in future.

Like 
  
Equitymaster requests your view! Post a comment on "The Cure for Stock Market Depression". Click here!
DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  4. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.