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Expectation game begins, again! - Views on News from Equitymaster
 
 
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  • Oct 29, 2007

    Expectation game begins, again!

    The P-Note clarifications and re-clarifications brought the markets back to their roaring mood during the latter part of the last week. Further, 'in line' September quarter results also aroused positive sentiment as the BSE-Sensex, the most followed stock index in the country, gained nearly 10% week-on-week.

    Coming to the current week, two events shall guide movements of the markets - the RBI's mid-year review of the monetary policy for 2007-08 (Oct 30) and the US Federal Reserve's monetary policy meeting (Oct 31). While much of the anticipations as to what the two central bank chiefs will do already seems to have been factored into stock prices, any reversals could act as spoilsports. As for these anticipations, while the Reserve Bank of India (RBI) is anticipated to keep interest rates stable, the US Fed is anticipated to drop theirs by 25 basis points, or 0.25%. We shall not delve deeper into what the RBI and the Fed might do in their respective meetings, as these decisions do not really guide the way we recommend stocks.

    In the meanwhile, you might see those bright faces on the business news channels claiming how they thought the markets will rise to breach another milestone - that of 20,000 (since for them, markets equals Sensex). And you might also see experts reasoning why investors need not fear anything and that the markets, having already passed a 'technical correction', shall not look back. And then, who knows, the Finance Minister might again come out of this North Block office to claim how he romanticized the Foreign Institutional Investors (FIIs) to buy into Indian stocks to remove fears from the minds of Indian investors! So what do you do when you hear such voices? Go by them? Probably no!

    Listen to what the Warren Buffett says - "A public opinion-poll is no substitute for thought."

    As we have mentioned a number of times in the past, stock market history has it that the actions of those who control the vast bulk of investments (institutional investors) guide the overall belief of where the markets are headed in the future - up or down. And then, there's the 'expectations' game that leads the way stocks behave in the short to medium term.

    What you, as a retail investor, can do is take this market volatility as a way to add on to your long-term portfolio of stocks - representing companies with strong business models and having credible managements. Make your choice by way of doing your own groundwork, follow the same with conviction and discipline, and leave aside greed and fear. There is probably no other way of generating wealth from stock market investing.

     

     

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