Monday, July 09, 2007
When we hear such optimistic predictions, we run to hedge our bets on the market. Don't mistake us, we love the way the market has been going and hope it keeps going, but its wise to step back and tamper optimism with reality. The last market correction was around the Sensex at 12,000 when the market took a 30% dive. We will not try to predict when the next correction will come, but trust us, it will come, and probably soon.
Our point is not that the market will not scale new heights in the long run, but the upward ride is interspersed with several bear runs during which the market will take some spectacular dives. The biggest risk to long term market gains, in our opinion, is political. The prospect of fragmented election outcome with assorted left-wing influence derailing the liberalisation process is a real threat. Steady privatisation and deregulation of the various market sectors is essential for the long-term market well-being.
Our investment philosophy involves getting out of the market when we believe the risk is too high. So to our readers, who might be thinking of taking a big loan to invest in the market, based on these rosy predictions, we would like to say that on its way to 50,000, the market could go down to 8,000, and when it does, how will you be doing? In the long run the market will someday scale 50,000, but that some day could be 15 years from now or 50 years.
You might have guessed that we are not big believers in "buy and hold" strategy for investing, (sorry Mr. Buffet). At a given level in the market, an investor must make a decision based on the risk versus expected return, whether its time to invest more, sell or just wait and watch. Optimism about the market (even in the long term) is not an investment strategy and that is all we have to say about that.
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