Date : March 10, 2008
Ref: MPML/PMS/056/2008

Holding On Through Thick And Thin make the MOST MONEY...

 

We came across an interesting article that appeared in The Economic Times dated March 10th, 2008. We hope it will be a worthwhile read in such a volatile Indian stock market.

"The market is self-correcting in nature. In the long run, it's capable of pricing assets efficiently. But in the near term, it's harder, if not impossible, to predict. So, investors who stick to quality portfolios make the most money."

THE DOMESTIC stock market has been witnessing considerable volatility and there are concerns about its future direction. However, news so far about the domestic economy and corporate sector is not really causing concern.


The market is driven by perception, rather than reality, in the short run. As of now, news emanating from the US and other parts of the developed world is not encouraging. This reinforces the perception that the going will be tough in future. However, in the long run, these may just be blips on the growth chart.


Though investors do have concerns, which make them think twice before venturing into the market, one must not forget that returns are gained only by undertaking risk. So, what appears to be a bleak situation (under normal circumstances) is the cause of abnormal gains if the bet is called right. In the strictest sense of the theory of efficient markets, no one would make above-normal gains otherwise. So, these fluctuations, driven by a mixture of facts and sentiment, are the quagmire that investors have to face on a regular basis. The relentless rise in the market over the past three years had desensitised investors to a large extent. Hence, the current phenomenon seems difficult to understand as of now.


Most investors are also in denial at times, which generally (if the market continues to fall) gives rise to despondency and eventual capitulation. Nobody claimed that the equity market is meant for everybody, or that it is a safe place to be in, or that it is a place to make easy and free money. Patient investors who stick to quality equity portfolios through thick and thin make the most money. Studies dedicated to buy and hold strategies have proved this time and again. The market is self-correcting in nature. In the long run, it's capable of pricing assets efficiently. But in the near term, it's harder, if not impossible, to predict.


Opportunities abound at the current market level. However, these opportunities may not lead to immediate gains; a much longer outlook is required for gains to accrue to investors. What is undeniable is India's appetite for infrastructure development and increasing consumerism in the country. If the domestic market is aided by a benign interest rate regime and supportive regulatory framework, it may become the best market in future."


Given the situation, we recommend you to deploy about 20% of your funds now to pick up fundamentally good stocks at fair prices at current Sensex levels.


Thanks and Regards,
PMS Team