Equitymaster Survey: Reading investors' minds... - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Equitymaster Survey: Reading investors' minds... 

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In this issue:
» Where do investors want to park surplus funds?
» US Fed wants the EU to get aggressive on quantitative easing
» EU reveals caps on bankers' bonuses
» The risks posed by Japanese central bank's property investments!
» ...and more!

Equitymaster's Investor Survey 2013 concluded yesterday. With over 16,000 people taking the survey, it was a rather successful attempt in trying to gauge the investors' pulse. An uncertain global economy and muted GDP growth has made investment prospects very gloomy for India. Disappointing performance of few sectors, political logjam, reform paralysis and bureaucratic hurdles has killed investors' appetite for India story. At least that is what the newspapers claim! However, the replies to some pertinent questions about what is on investors' minds, were quite a revelation. Allow us to share some of the key takeaways from the survey results with you.

Investors no longer see stock market performance in isolation. When asked about the reason for disappointing performance of their portfolio, 24.3% respondents blamed global economic crisis. More importantly, 34.6% of the respondents believed that their own greed to earn quick results resulted in losses. Thus the understanding that one cannot take macro headwinds and stock valuations for granted came out clearly in the survey. We congratulate the respondents for taking this first step towards smart investing!

Equity is no longer just 'yet another asset class' that Indian investors consider for their portfolio. 38.5% of the respondents said that stocks and equity funds formed the largest chunk of their portfolio. In fact even real estate (net of loans taken) ranked a tad lower at 34.7% of investors portfolio. What was most assuring is that an overwhelming 65.7% of survey takers claimed that they wish to remain invested in their stocks. Again here the reason had nothing to do with near term speculation. More than 70% of the respondents were looking at a period of 3 to 5 years for BSE-Sensex to touch all time highs of 30,000 +. Something that is not impossible! The faith in long term investing and compounded returns from equities resonated in the survey replies.

However, there was only one factor that seemed a little jarring. This was the response to where investors see the BSE Sensex in a year from now. 62.7% of the investors responded - Well above 20,000! Now, at Equitymaster we do not believe in making short term predictions. However, we would request investors who are looking at short term gains to remain wary of muted earnings potential. Any mistake in selection of stocks or over priced purchases could pose a grave risk to their portfolio.

All in all, the investor survey stands as an important yardstick for us to measure investor appetite for India growth story. And we can say with some confidence that well informed, careful and disciplined investing can go a long way in helping more investors realize their wealth building targets.

The details of replies to all the queries forming part of Equitymaster's Investor Survey 2013 have been laid out here. Please share your comments or post them on our Facebook page / Google+ page

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01:35  Chart of the day
Where will you park your surplus funds? Given the level of pessimism in the markets even a reply like 'under the mattress' would not have surprised us! Interestingly just 10.8% of respondents to the survey want to stay in cash. Here too, the fact that 41.3% of survey takers wanted to put more money in stocks was a revelation. 29.9% believed that real estate was a better option while 9.0% would prefer to park money in debt and debt funds.

Now, it has been a while since we have been trying to draw investors' attention to the importance of Asset Allocation. No doubt stocks are certainly one of the best ways to create long term wealth. But without an eye on asset allocation, investors could be subjecting their portfolio to grave risks!

Also not all debt investments are as safe as they are perceived to be! Investing in realty is something that is fraught with risk if done with leverage and based on speculative pricing.

But investment is gold is something that has never been more relevant. Given the unprecedented money printing, risks of hyper inflation and currency devaluation, it is only gold that can claim to be a safe haven asset. Hence that just 8.9% of survey respondents are looking to buy more gold seems worrying. We believe that investors should consider having at least 5% of their portfolio in gold. If that is not already the case, they should consider investing in the yellow metal, not for super normal returns, but as a long term inflation hedge.

Source: Equitymaster Investor Survey 2013

Here is more on gold...Prices of the precious metal have been tumbling down in recent times. This has made many investors wary of the yellow metal. Investors are worried that prices may fall further as people are turning bearish with regards to gold's prospects. But is this pessimism related to gold overdone? For this, let us understand why gold's prices should fall or rise.

Advocates of the bearish view on gold say that the global economy is on the path of recovery. Therefore the need to park funds in a safe haven has diminished. This is why big investors have offloaded gold from their portfolios which has led the prices to fall. If you subscribe to this view then you are far from being right.

Things in the global economy are not better. US economy is still gripped by a slowdown. The Euro zone is just postponing crisis. Nothing has been resolved in that region either. All over the world economies are slowing down and volatility is prevalent. During such times prudence demands that investors hold at least 5% of their portfolio in gold. Think of it as an insurance policy that would come handy when the tide turns.

There's an interesting bias in psychology. It is called the confirmation bias. What it does is plays some pretty dangerous tricks on people. It lets people collect only that information from the world that confirm their pre-existing beliefs and philosophies. We believe that one of the Presidents at the US Federal Reserve is the latest to fall prey to this bias. In a recent interaction, he has argued that Europe could get sucked into deflation and low growth if it doesn't follow in the footsteps of Japan. He did not stop here. He also lent a voice of support to the current US Fed policies of quantitative easing, terming it as the best available policy option.

Perhaps all he needs to do is come out of the bias and see money printing for what it is. The policy seems to be working just fine for US and Japan currently. But it's just on the surface we believe. A deeper look and one would realize how it is causing mal-investments in economies and doing nothing but blowing up asset bubbles. However, the irony is that rather than getting alert to this problem, the officials are celebrating and throwing more money at it. Oblivious of the fact that the more they do so, the bigger the mess they will end up creating.

Japan has become an area of big worry of late. The reason being its extravagant quantitative easing (QE) program. The Bank of Japan has pledged to double its monetary base. The money printing is bigger than even the one unleashed by the US Federal Reserve.

Japan's QE plan has sent asset prices soaring. While the Japanese yen has plunged, the stock markets have been soaring. But the rise in asset prices has been quite uneven.

We came across an interesting article in the Wall Street Journal that highlights this fact. For instance, the shares in real estate investment trusts (REIT) have shot up quite a lot. During the first four months of 2013, the Tokyo Stock Exchange REIT index was up 43.5%. This was higher than the 35.5% gain delivered by the broader index. Among others, the central bank of Japan was a buyer of listed property investments.

Now here is the worrying part. While REIT prices have soared, the underlying property prices haven't moved much. The activity in the physical property market has been lacklustre. Prime office vacancy rates are still hovering around 8%. Apartment prices in Tokyo are still 22.8% below their level in 2000. As per the article, the sector is trading at a hefty premium to the underlying property assets. How will that gap close? Either property prices will have to rise. Or REIT prices will have to tumble. Certainly, a very risky environment for investors!

The global financial crisis was a product of unscrupulous and risky practices by bankers driven by greed. So when governments went into damage control mode, it was hardly surprising that curbing fat salaries and bonuses found a lot of takers. There has been considerable backlash on the obscene amount of bonuses that bankers have been getting. And the latest in this regard is the European Union. Europe has been battling recession, high unemployment and massive debt for quite some time now. All of this has been a fallout of the global crisis. As a result, EU regulators intend to cap bonuses of bankers earning more than 500,000 euros a year. The cap will hit bonuses awarded for 2014 and due to be handed out in early 2015. It is particularly aimed at deterring unnecessary risk taking in banks.

Banks are not too happy with the move. Those in London especially opine that they will lose talent to other global banks. But their arguments are hardly likely to garner any favour. And while curbing bonuses is just one aspect, we believe that this alone is not enough to curb risky practices at banks. What will be needed is strengthening and overhauling systems and processes at banks so there is no repeat of such a big crisis in the future.

India has had a trade deficit with China for long. The reason is fairly simple to understand. China is an export powerhouse. Also, since its currency is pegged and kept artificially low, Chinese goods get competitive advantage across the world. However, during the recent visit of Chinese premier to India, both the countries decided to take steps to reduce this deficit. But it seems that this is unlikely to happen. The reason being India's exports to China majorly comprise of iron ore and iron sand. And considering the slowdown in the Chinese real estate market the demand for these Indian raw materials has declined. As a result, India's exports to China have declined. On the other hand, Chinese exports have been on an increasing trend. During the first four months of this year, Chinese exports increased 3.6% YoY. This has resulted in widening of the deficit. Considering that China's export basket is wide and India is dependent on Chinese products, the only way to reduce the deficit for India is to try and increase its exports to China. And this can be done by manufacturing goods that meet Chinese demand.

Despite buying interest in pharma, commodity and telecom stocks, the Indian indices have languished close to the dotted line for most of the session today. Profit booking in heavyweights from energy and engineering sectors weighed heavy on key indices in Indian equity markets . The BSE Sensex was trading higher by around 24 points at the time of writing. Other major Asian markets, except China, closed higher while markets in Europe opened in the red.

04:50  Today's investing mantra
"Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."- Warren Buffett

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    4 Responses to "Equitymaster Survey: Reading investors' minds..."

    Sidhath Jaggmohan

    May 23, 2013

    Some points which seems missing while concluding the outcome namely:"the survey if conducted online among Equity master readers",
    1. it represents the equity community and hence, higher percentage of equity participants is on expected line. But it does not represent the Indian Investors/ Savers in totality.
    2. since the prophecy of Equity master is "Long Term Investment Practice" the participants belongs mainly to that category, hence the outcome "on long term investment strategy" should not be extrapolated to equity participant as a whole.
    3. since the sample used in the survey, is belonging to a particular domain, it does not reflect the actual Indian Domain of Investor.



    May 22, 2013

    Survey results may be biased because it was taken by those people who are already subscribed to your emails, which in other words mean they are already predisposed towards equity. I am sure more number of people have pared down their equity exposure to negligible level , as compared to those, who have increased their equity exposure.



    May 22, 2013

    I am one of the 62.7% investors who see Sensex at well above 20000 a year from now. The reason is mainly the change of guard at the centre


    NP Perumal

    May 22, 2013

    I am one of the 16421 who had participated in the survey. It would have looked idiotic when I mentioned I had lost money due to the broker.
    I have been in the market from 1990 to 2008.Despite my instructions, on 22nd jan 2008, my broker India Cements Investment Services Ltd liquidated all my futures positions and emptied my cash margin of Rs 15 Lacs and shares of 25 Lacs in the market opening time despite repeated requests to the contrary, though I had given my cheque for margin calls. Worse, when the shares were available cheap, the same day evening, at much cheaper price, they refused to buy back.
    Ever since 1990, I had never faltered on margin calls.Though I was in Karnataka, Kerala and Tamil nadu , the account was operated from Bangalore Terminal always. On 28th Jan 2008 they shut the bangalore terminal and Operated from Chennai HQ without listening to either me or Bangalore Staff.
    Thus my entire investment of Rs 40 lacs earned over the years was thrown away by the broker, ICISL, (owned by BCCI and IPL infamous Srinivasan)under the pretext of market mayhem. 40 Lacs went without a trace. They used up my Cheque of Rs 4 Lacs for further Loss. This is the kind of Institutional brokers we have. They can get away with anything.They allowed me to trade in the market with positions equal to Rs. 4 Lacs. But I had lost all the money and interest in the market.

    Ever since then, focussing only on my profession. Still I would say, Investment in Equity is good. Hence my suggestion to other investors, if you can understand the intricacies of the market, trade, otherwise, just invest in blue chips of trust worthy groups with reasonable return expectation and have peace of mind.
    Trading through brokers and Futures is a sure way to lose and will only enrich the brokers.

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