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Stockmarkets: Play it safe! - Views on News from Equitymaster
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  • Jan 5, 2004

    Stockmarkets: Play it safe!

    There are talks about history being created as the BSE-Sensex has breached the 6,000 levels, nearly 4 years after this 'magical' figure was reached on February 14 2000 earlier. And this has brought forward many a brokerages to spell their 'divine' forecasts regarding the Sensex touching new highs in the short-term. While this is not to mock at the abilities of these institutions to forecast the future, if history (remember year 2000?) is anything to go by, investors better play safe!

    Now, while many factors seem to have changed over these years, two factors that remain the same, and would continue to cling to sentiment on the stock markets are greed and fear. These factors have played crook on investments made by small investors in the past and, we fear, the way Indian markets are moving up, they (greed and fear) may cause heartbreaks once more.

    Wait! We are not here to spoil the party (or the hangover) that is making rounds in the equity markets in the country, we are just specifying our cautious stance. Speculators, who had the honour of 'playing' the markets in the 2000 boom and bust, are likely to rear their face again, if not in the immediate present than in the not-so-far future. While we completely concur with the long-term growth story of the Indian economy and on the fact the India has finally 'appeared' on the global scale, what we are really concerned about is the fact that we (in the equity markets) seem to be moving rather too fast. And thus, the chances to trip are high.

    Consider the facts, apart from the companies that have a long-history of being listed on the bourses, even those that are just appearing on the public scene and about whose fundamentals investors have no (or less) clues, are gaining substantially in this period of intense optimism. Some call it the 'IPO boom' and some call it 'the emergence of a new India Inc.,' we would like to caution investors from investing in these new kids on the block without having ideas about their performances in the past. To take a leaf from Benjamin Graham's thoughts, IPOs does not only stand for 'initial public offerings.' More properly, and especially at these times, this might mean either of the following-

    • It's Probably Overpriced
    • Imaginary Profits Only
    • Insiders' Private Opportunity, or
    • Idiotic, Preposterous, and Outrageous

    Finally, while the greed factor is much responsible for this merry-making on the bourses, even a small hint of fear taking over can end up in a contagion, hurting the sentiment of those for who believe that there's no stopping markets from going up, and up, and higher up! And that would be unfortunate for small investors who would have invested their hard-earned money as guided by the 'ever-optimist' forecasts. Remember the words of the eminent economist John Maynard Keynes who once said, "Markets could remain irrational longer than investors could remain solvent!"



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