Dec 7, 2009|
Should you be buying stocks right now?
A wise man once said, 'You should buy stocks like you buy your groceries, not like you buy your perfume.' Indeed, the really dreadful losses in the last few years (and on many similar occasions before) have been realized by investors who forgot to ask the simple question - "How much?"
The chart below throws some light on that very issue. It shows the historical fluctuations in the price to earnings ratio of the BSE Sensex starting from the year 2000. The blue bars represent the P/E high touched during the respective year, while the red ones represent the low P/E touched during the same year.
| Data Source: Prowess
Note: Data for 2000 starts from June 2000, data for 2009 is year-to-date
As can be clearly seen, the Indian markets have been quite a volatile to say the least. They can very easily decline by over 40% to 60% from their high valuations within the very same year. They did that in the years 2000, 2001, came close to doing that in the rest of the years, and traded lower by much more than 40% compared to their high valuations in the years 2008 and 2009.
Yes. That's the nature of the beast. Moods change. Attitudes change. What is popularly termed 'outlook' changes.
The future is never certain. But it is usually when investors and 'experts' perceive the future to be the brightest that the highest valuations are clocked. The opposite applies for the low valuations. It is when the outlook is said to be the worst that the lowest valuations are struck.
The Sensex currently trades close to its yearly high of 22 times its trailing twelve months earnings. A far cry from its lows of 10 that were hit in the last one year. Considering the liquidity and optimism that currently surround the equity markets, prices can be called anything but cheap. The probability that one will get to see more sensible valuations for buying stocks some or the other time in the future is quite high.
Until then, all that is needed is a big dose of 'patience'.
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 16, 2017
All across the country, the old gods become devils. New, gluten-free gods take their places...
Aug 16, 2017
And what it has in common with beating the stock market too.
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Aug 14, 2017
Last week's correction is making a number of Super Investor stocks look a lot more attractive...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 4, 2017
The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407