Let Einstein guide you in stock market
by Puneet Jain/ Economic Times
“ We must learn to differentiate clearly the fundamentally important, that which is really basic, from that which is dispensable, and to turn aside from everything else, from the multitude of things which clutter up the mind and divert it from the essential.”
- Albert Einstein
For those who hope to make money by investing in stock markets there can be no better advice than this from one of the greatest minds that ever lived on this planet.
In this age of information overload and ‘expert advice’ every minute on TV channels the good old investor’s own instincts have been lost. Driven by multitudes of experts offering all possible kinds of opinions, even long term investors are driven to take rash actions.
In these heady days, serious investors must learn to keep their own counsel and their own targets. Every day events and ‘breaking news’ rarely change anything in the long term and investors who try to time the market usually commit serious errors.
Therefore, focus on the market trend and the underlying value of a stock. Profits should also be booked regularly to prepare for future shocks. In recent days, the movement of stock markets reminds me of the Chinese saying: May we live in interesting times.
For equity investors in India there was never a more interesting time than the present. Never before has a market broken the previous peaks so many times within such a short span. We are now in completely uncharted territory and the only advice can be that investors must remain on their toes.
Analysts brought up on a diet of past experiences and lifeless lines have been completely unable to decipher the mood of this market or its trajectory. Therefore, the only way to move forward is to focus on some key issues that are driving these indices and for how long these factors could continue.
The key factor driving the market right now is the surge in global liquidity and flow of funds from debt to other assets like equities, gold and real estate. This is a worldwide phenomenon and rather inexplicable as rising interest rates were supposed to make debt more attractive.
However, global investors continue to prefer other asset classes even though riskier.Also the huge shift in money from developed economies to developing economies on account of trade imbalances is creating consumption and economic growth in areas like China and India.
Therefore, one can safely conclude that the India growth story is likely to continue for a many more years. Therefore, the rally in stock markets can be seen as a structural bull market that would last many years and scale new heights.
However, within such a bull market there can long periods of downtrend or sharp falls. Investors must remain prepared for such periods when prices will fall sharply and there could be panic.One way to safeguard your interest would be to ensure that you are not heavily leveraged.
Regular profit-booking on profitable trades is also important. One must also stick to the fundamentally sound stocks because even if you end up buying them at a high price they eventually bounce back.
Given the global trend it appears that equities will remain very rewarding in India, however risk management becomes most important from now on.
