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Should you be buying stocks right now? - Views on News from Equitymaster
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  • 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'.



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    7 Responses to "Should you be buying stocks right now?"

    Samiron Kahali

    Dec 18, 2009

    Specific stocks whose values are attractive and fundamentals are solid may be baught now.



    Dec 11, 2009

    Patience Pays...


    P.P. Arora

    Dec 8, 2009

    Buying stocks is worth when valuations are known to be low. Unfortunately, they are far from right now. How soon these would be more low - none can say it. Be realistic to what you see today. No set rules for a stock market anymore.



    Dec 8, 2009

    Stock picking is not for common people. Do SIP in any equity based MF of your choice and keep putting money into it diligently like you would pay your EMIs for loans.

    Timing the market never succeeds. Find me someone who predicted the fall of 2008 and rise of 2009. If you could not predict it then, you can not predict it now.


    amir lakhani

    Dec 7, 2009

    what abt the couple of shares that you have recently recommended at 19+p e? Incidently they are now a little lower than the recommended price.



    Dec 7, 2009

    continue to buy on every dip.nibble at targets and remain invested so as to be ready to book profits when the gets greedy & busy buying!!!!!


    prem kumar

    Dec 7, 2009


    Equitymaster requests your view! Post a comment on "Should you be buying stocks right now?". Click here!

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    Aug 17, 2017 12:14 PM