Time and again we have expressed our views on why we consider equities as a preferred class of investing. It is not just probability of high returns that attracts us, but the probability of zero capital loss in the long term that appeals to us.
That said, stock markets are not for everyone. One needs to spot a good business at right valuations and stay disciplined. Over the last year, such opportunities have been limited. Since Mr. Modi's rise to power, markets have been driven by optimism, causing valuations to run ahead of fundamentals. It is only recently that investors have been offered a dose of reality by FII pull out and weak earnings season. While the trend has unnerved a lot of investors, some, including us believe such corrections offer a great opportunity for long term investors to buy great businesses at fair valuations.
That said, a winning strategy will require lot of patience. Our economy is on the threshold of a turn around. But the same is not going to happen over night. As an article in Economic Times suggests, in the near term, China may outshine India as far as fund inflow is concerned. Secondly, Indian economy is shifting focus from consumer gear to capex and infrastructure gear. With major reforms yet to be announced and executed, it will be naive to expect too much from economic scenario and on corporate earnings front in the near term. Policy framing and their execution is something that takes time. And in the meantime, there may be some bumps on the road to economic recovery.
Investors can make the most of such times by keeping ready a list of companies with strong fundamentals. And grab the opportunity when markets offer such stocks at attractive valuations. The real challenge here will be to curb the speculative tendencies and urge to act on the constant information on market movements that will have little relevance to the intrinsic value of the stock. If one can befriend volatility and stay disciplined, equity markets can offer great returns in the long term. We would like to conclude with a quote from legendary investor Mr. Warren Buffett - "Be Fearful When Others Are Greedy and Greedy When Others Are Fearful".