In this issue:
"October is one of the particularly dangerous months to invest in stocks. Other dangerous months are July, January, September, April, November, May, March, June, December, August and February," said Mark Twain in a lighter vein. This October proved him right with what was the worst performance ever recorded by Indian stock markets since the start of this millennium.
» Stock markets' worst month
» India's prime lenders in prime health
» ...and more!
The BSE-Sensex declined 30% during the month, far outpacing the 18% decline of June 2008 which was the earlier worst month for Indian stocks. The losses would have, in fact, been worse but for this week's surge, which saw the Sensex gain almost 13%.
------- Don't Miss! -------
The Equitymaster Stock Market Yearbook 2009
Your unbiased guide to 200 top Indian companies.
Released! Get Your Copy Today!
Click here for details.
Global markets also witnessed turmoil during the whole of October, except for the week gone by. The US markets lost 17% during the month (its eighth worst monthly decline ever), with the losses being pared by a 13% gain during this week. Investors across the world moved from fear, to panic, to caution and to some optimism.
Apart from economic slowdown fears, weak future outlook indicated by corporations worldwide as they announced their July-September quarter results also weighed heavy on sentiment during the month. As far as India is concerned, companies had to grapple with one more menace - the depreciating rupee. The rupee depreciated by around 6% against the US dollar in October (after the 8% depreciation in the July-September quarter), crossing its all time low of 50 (though it closed the week below this mark).
Crude oil prices increased by 6% during the week to almost US$ 68 a barrel. Gold prices slid by over 1% to US$ 723 an ounce. For the month of October however, while oil prices were down a whopping 33%, gold was down almost 18%. Gold's performance in October 2008 may well be the worst in more than 25 years (since February 1983), as a stronger dollar and declines in crude oil reduced its appeal as an alternative asset.
As Franklin D. Roosevelt once said, "The main thing to be pessimistic about today is pessimism itself." And we have loads of this emotion floating around among investors these days. Sure, the current crisis is dire and might worsen before it gets better. But that is like taking a call on the future, which has always been so uncertain. Think about the present, which is 'presenting' such wonderful long-term investment opportunities.
We ask you to stay away from the noise. We will not try to kid that we know how the stock markets will move in the short term. However we are quite certain that that stocks across the spectrum - large, mid and small - are on fire sale. If you have cash to spare, put some to work. Invest in solid companies. Invest in strong businesses that are likely to weather this downturn and emerge much stronger over the next few years.
|| The week's biggest news - India's prime lenders in prime health
The BSE-Bankex index, with an 8% rise, was amongst the key gainers among sectoral indices this week. And the result - better than expected results from two biggest financial entities in the country - SBI and ICICI Bank, more promising for the former. SBI reported a 29% YoY growth in its interest income on the back of a robust 38% YoY growth in advances during 1HFY09. What is more, the bank's net interest margins (NIM, a measure of profitability in lending) improved to 3.2%, from 3% in 1HFY08. There was also a decline in the net NPA to advances figure, indicating the safety of the bank's books.
As far as ICICI Bank was concerned, while growth in net interest income remained muted at 6% YoY during the half year period, what was promising was the improvement in NIM to 2.6%, from 2.2% in 1HFY08. The bank also reported a very health capital adequacy ratio of 14% at the end of September 2008, indicating that it is has sufficient capital to pursue growth opportunities in the future.
This personal finance legend has long thought and preached that investors should not bother trying to pick individual stocks but should invest in low cost index funds. He is now saying that it is a very good time to put money into stocks, not for the short term but as part of a diversified portfolio that you can hold for the long term. And you should listen.
|| Best of this week's 5 Min. WrapUp - Father of Index Funds taking stock
Mr. John (Jack) Bogle, rated by Fortune as one of the four investment giants of the twentieth century is the founder of Vanguard, one of the world's largest and most respected mutual fund houses.
He said and the International Herald Tribune reported, "The probabilities for stock market investing right now are very compelling. The cataclysm in world financial markets has brought down valuations to fairly attractive levels. So this isn't the time to sell."
His views however come with a caveat - "If you cannot afford to lose another penny, then you simply have no recourse but to get out of the stock market. Stocks could easily fall further, and if you aren't in a position to absorb more losses, you must protect yourself."
What Bogle simply means is that for long-term investors who can afford to wait to create wealth for meeting their financial commitments (like education and marriage of children, and retirement), the probabilities are much better right now than a year ago.
"Despite an orgy of speculation that has hurt the global economy," Bogle says that he remains convinced that if long-term investors stick to the basics, and try to have strong stomachs, they can ride out the rough patches and ultimately prosper.
"If you were to put your money away and not look at it for many years, until you were ready for retirement, when you finally looked at it, you'd probably faint with amazement at how much money is in there," he quips.
"The list of qualities (an investor ought to have) include patience, self-reliance, common sense, a tolerance for pain, open-mindedness, detachment, persistence, humility, flexibility, a willingness to do independent research, an equal willingness to admit mistakes, and the ability to ignore general panic." - Peter Lynch
|| Weekend investing mantra