- June 1, 2012
- Category: Investments
News of a continual fall in the rupee, fiscal deficit, economic recession and the resultant fall in the stock markets continue to hog headlines in all business newspapers nowadays. Investors suffer from an information overload coming from the print and electronic mediums which paint a dismal picture.
It is thus natural for investors to press the panic button and sell their shares or discontinue their equity mutual fund SIPs in a jiffy. This knee jerk reaction often reminds me of a contrarian concept of buying at maximum pessimism. Aptly quoted by legendary global investor Sir John Templeton, it states:
Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell. The table below aptly justifies this quote.
| Period | Event | Sensex Lows during the event month | Return after 3 years (%) | Return after 5 years (%) | Return till date (%) |
| Sep-01 | 9/11 Terrorist attack in USA – September 2001 | 2595 | 116 | 373 | 525 |
| May-04 | BJP’s defeat in general elections | 4227 | 238 | 238 | 284 |
| Jan-08 | Aftermath of Global Liquidity Crisis | 8047 | 113 | – | 101 |
These huge returns were generated when investments were made in a falling market. The point I am emphasizing here is that investments should be focused on value rather than be influenced by news. Let us accept the fact that an economy like India having a billion plus population will continue to face challenges, both external and internal. Issues like scams, corruption, fiscal deficit, inflation, global crisis, currency risks, poverty, black money, political instability, government inaction, etc will continue to plague the country at some point or the other. These no doubt have a bearing on the growth of the economy. But these issues are not new.
On the positive side, India is still one of the fastest growing economies of the world. There are still several businesses which have the scope to grow and reward investors handsomely. The key lies in spotting these value investments. It is important not only to invest in a good company but also to invest at the right price. And what better opportunity can you get to invest but in a falling market.
Secondly, if you have invested in the markets with the money you do not require for a really long period of time (read at least 10 years), then you need not bother about the short term market gyrations. In fact, perceive it as an opportunity to enter the market at lower levels. So do not sell your shares in panic or stop your equity mutual fund SIPs.
– Happy Investing
