Mar 9, 2010|
You will make a big mistake if you ignore this
If you are one of those that had invested in the stock markets exactly one year back, today is indeed a big day for you. That is because considering yesterday’s closing levels of 17,103 for the BSE Sensex, the overall markets have given their single largest returns in a one year period in nearly two decades. A neat 110% to be precise. 110% returns in a one year period is almost unheard of from the overall market.
Exactly one year back on the 9th of March 2009, the BSE Sensex closed at 8,160. It was a day when there was gloom all around. Most people agreed that valuations for many companies were extremely cheap. However, at the same time, buying equities at the time was considered to be extremely risky. Why? The financial world globally was in turmoil. More so, cheap valuations weren’t seen as reason enough to be heavily buying equities. Instead of buying, most experts were busy predicting where the markets will go next. And most agreed that they will go lower. The search for the bottom was on in full swing.
Many investors perennially leave aside one of the most important factors in investing - price. When times are bad, price is left out of the equation in favour of all the other external bad news surrounding equities. Thus, no one ends up buying even though valuations may evince a screaming buy. Those that ignored the price factor in turn missed out on the greatest one year rally that the Indian markets have ever seen.
The following table of the sectoral BSE Indices should make things a little more vivid -
Data Source: Prowess
| BSE Small-Cap
| BSE Auto
| BSE Bankex
| BSE Mid-Cap
| BSE Realty
| BSE IT
| BSE Capital Goods
| BSE Sensex
| BSE Healthcare
|BSE Oil & Gas
However, the most important thing for investors to note is that the same tendency applies on the upside. When times are good, investors tend to once again overlook the all important price factor in favour of other external positives like GDP growth and burgeoning demand. As we have seen, leaving the ‘price’ factor out of the equation is never a good idea, whether times are good or bad.
Thus as market and individual stocks scale new heights every day, one needs to remember that all other good and bad factor surrounding a company need to be looked at in conjunction with the prices at which these prospects are being offered. Prices and valuations deserve a much more closer look than what most people are willing to give it.
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