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Stockmarkets: Happy New Year! - Views on News from Equitymaster
 
 
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  • Jan 1, 2004

    Stockmarkets: Happy New Year!

    Making a New Year resolution is quite easy. Practicing the same is otherwise. And when that resolution demands high levels of discipline, the task becomes all the more burdensome. First of all, most of us generally fail to make reasonable resolution(s), and that is the major reason why most of us fail to keep the one(s) we make! One such (difficult) resolution that we often fail to put into practice tends to relate to investing, more specifically, to equity markets.

    Eminent constitutional lawyer, the late Mr. Nani Palkhivala had once said, 'Human nature is human nature and human nature would continue to remain human nature till human nature remains human nature!' And this phrase, when used in context of investing in equities, holds true to a very high extent. History, even of recent times, is replete with examples when greed and fear have taken over discipline, resulting into windfall gains and, of course, 'windfall' losses for investors. And more sadly, small investors are the biggest losers in these phases of indiscipline (recollect the year 2000 stock market boom and bust). While greed results into bulls taking the centre-stage and leading markets towards nauseatingly high levels, fear brings them back to ground zero. And small investors suffer in both these situations.

    Now, as we enter the year 2004 AD, Indian equity markets are at or nearing their all-time highs. While such a situation brings in factors that cause the 'greed' element to rear its face, investors need to practice utmost caution and not give in to temptations that rising markets like these bring with them. This calls for high levels of discipline and, in these times, two key rules of investing given by Benjamin Graham, one of the world's most famous investment gurus, should be held in high regard. The two rules are:

    • Don't lose money, and
    • Don't forget the first rule.

    While investors ardently wish to follow the first rule, in this devotion, they tend to forget the second and the more important one. If, and only if, investors could practice the second rule, the first one would need no effort. Coming back to the New Year resolution, sure, all resolutions do not make it past the second of January, but wisdom would be in believing that this year is going to be 'different'. Right? Happy New Year!

     

     

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