What are these good times & why should we wait?
First let us understand why we should wait?
“Law of farm – you can’t sow today and reap tomorrow”
In agriculture, you sow seeds, water it and wait for long time to get the crop. Isn’t it? Its the law of farm. The same principle is applicable to investment too. One can’t expect wind-fall gains in 1 day or 1 month or 6 months or 1 year or 2 years.
Now to the first question…What are the good times ahead?
Is it a good time to invest, when the Stock market (Sensex / Nifty) has crashed by 40%?
Is it a good time to invest when the Stock market (Sensex / Nifty) has gone up by 50%?
Generally, we think that when the Stock market has gone up by 50%, the economy & Companies are doing well and it is a very good time to invest.
But, exactly the opposite is true. If you invest when the Stock market has gone up by 50%, there are more chances for the Stock Market to go down rather than to further go up and it has happened frequently in the past.
Refer the above Sensex graph from 2000 to 2016. When the Stock market crashed by 40% in early 2008, everyone exited the Stock market and it appeared to be a horrible time for the Stock market. But the reality is that all the Stocks are available at dirt cheap prices. When good companies are available at cheap prices, should we invest or stay away? Staying away is the action taken by most of the investors during 2008 period. But the Stock markets recovered swiftly within 15 months and has gone up by 100%.
The conclusion is you should invest when the Stock market is bad / worst and you should sell and exit when the Stock market has already done well and gone up by 40 – 50%.
“Buy when everyone is fearful and sell when everyone is greedy.”
If you observe the last 1 year period….you will find an opportunity:
In Feb-2015, Sensex was @ 30000 level. Sensex fell to 23000 level in Feb-2016. It means Sensex has fallen by 24% in one year time.
Now the Stock market is not in good condition and the economy (both Indian and global viz. China, US, Japan, UK etc.) is not good and the Companies are not doing good. So is it a good time to invest now?
And Stock Market keeps falling down frequently and gives opportunities for Investors to invest their money at reasonable prices. Markets going down should be looked at as opportunities to invest rather than to stay sidelined.
In the period: 2000 to 2003, Stock market had gone through a bad phase, economy was bad, Companies’ profits were just not growing. In the year 2003 sensex was at 3000 level. Economy started improving from 2004 onwards and Companies’ profits started increasing and the Sensex started going up. Sensex went up from 3000 level in 2003 to 21000 level in 2008. So what would have happened to the investors who have waited patiently during the tough times? They would have got splendid returns virtue of their patience.
In Jan-2008, Sensex reached a peak of 21000 and in Feb-2016, sensex is @ 23000, which means it barely grew by 9.5% over 8 yrs. Currently, we are in 2003 kind of situation. It also means that there is huge growth ahead of us and we need to invest and continue investing and wait patiently to get stellar returns in the coming 3 – 5 yrs.
There is a famous dialogue in a Telugu movie “Khaleja”:
“Nobody realises when a miracle is happening and there is no need to realise after it has happened”
Many investors didn’t invest their money in 2003 – 2007 period when the sensex was @ 3000 thinking that the Market was bad. Everyone started investing when the Sensex has reached 21000 level in Jan-08 and the Stock market crashed and nose-dived to 9000 level.
Invest during bad times and patiently wait for ‘Good times ahead’ to get good returns.
Mutual Fund SIP is the best way to invest in Stock Market as SIP takes care of Market fluctuations and does rupee cost-averaging.