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You will make a big mistake if you ignore this - Views on News from Equitymaster

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You will make a big mistake if you ignore this

Mar 9, 2010

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 -

  9-Mar-09 8-Mar-10 Returns
BSE Metal 4,439 17,547 295%
BSE Small-Cap 2,867 8,592 200%
BSE Auto 2,599 7,688 196%
BSE Bankex 3,633 10,310 184%
BSE Mid-Cap 2,553 6,783 166%
BSE Realty 1,304 3,440 164%
BSE IT 2,025 5,265 160%
BSE Capital Goods 5,453 14,009 157%
BSE Sensex 8,160 17,103 110%
BSE Healthcare 2,519 5,095 102%
BSE Oil & Gas 5,634 9,772 73%
Data Source: Prowess

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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10 Responses to "You will make a big mistake if you ignore this"

b

Apr 24, 2010

whatever said and done share market performance is triggered by foreign investments and such investments are done for making profits. any lethargy on fdi reflects in sensex

Like 

Balasubramanian K

Mar 16, 2010

Sir,Your article is educative enough.We have to realise that our economy is not merely guided by corporate-governance, company-fundamentals,govt-policies etc. Our economy is now governed by (1) unimaginably high fake-money supply into the system from countries out to ruin our Economy (2).Unbelievably high corruption at all levels of governance, from peons to top-levels,resulting in Govt. getting only less than 10% as fees/service-charges ,while officials get over 90 % as their share ,with unaccounted wealth for exceeding declared assets,be it a citizen or a politician and a set of highly self-serving members in Govt. Soon we will realise that our country is fast becoming another Indonesia of yesteryears. At that time ,all stock -market theories will have to be confined to dust-bins.

Like 

S.Aravanan

Mar 15, 2010

What you have written is 100% correct. When it is time to buy we dont buy and when it is time to sell we dont sell. Specifically this applies to small investors.

Like 

pkgupta

Mar 14, 2010

Dear sir
Which share i shld buy it isnot clear from ur mails so far.
Pls advise accordingly
Thanks
p.kgupta

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M L POPLI

Mar 14, 2010

please comment on subscribing to IPO IL&FS TRANSPORTATION LTD

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Himanshu B Kapadia

Mar 13, 2010

Indeed an eye opener and very clear emphasis on "PRICE" in every season...Most appreicable value addition will be future forecast on the above sectors by Equity master for guiding subscribers on 'Stay Away & Invest in' Sector.

Like 

C.R.Periaswamy

Mar 11, 2010

Most of the investors know and agree the contents, but forget in due course. It will be appreciated, if this article is to be reproduced during the peak and down times, when thought to be appropriate.It will save lot of small investors' money.

Like 

KUNJUMOHAMED

Mar 11, 2010

Very educative article but less clarity when should profit be booked.

Like 

Rakesh Guggilam

Mar 11, 2010

It is a very good idea. Everyone should implement it. Chance once lost will not come back. So its better to invest fast in the stock market

Like 

Rajmeet

Mar 11, 2010

very thoughtful and an eye openner article...keep it up...

Like 
  
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