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Stay Invested in Equity

Stay Invested in Equity

Yesterday was a pleasant day for the bulls. The fact that the U.S. market bounced back on Monday was good enough to maintain the positive sentiment even today.

Of course, the Reserve Bank of India (RBI) helped too. On the back of the aggressive CRR reduction and the cut in the Repo Rate, the situation in the money market has improved. Though it remains to be seen whether banks will follow suit and slash lending rates. They probably will play cautious and cut deposit rates first, before easing lending rates.

But that does not mean a rally is in sight. Almost every other day there's some good news that gives the market a boost, only to be followed by some bad news that sends it reeling again.

In this context, it would be nice to refer to an interesting piece that appeared last month in the Financial Times. The author, Anthony Bolton, claims that over the past 35 years as an investment analyst and portfolio manager he has never witnessed such drama as he is now. And while he agrees that holding ones nerve in such a market is far from easy, his advice is simple: Do not time the market. Ride out the volatility. Do not attempt to dip in and out of your investments.

He advises investors not to run away from the market. He believes that stock markets tend to rise well before the official data indicates a recovery in the economic climate. He also is of the view that if you wait for the statistics to confirm an improvement in economic conditions, you will end up missing the bounce in prices that often heralds the start of a new bull run.

This month, Warren Buffet echoed the identical view in the New York Times. He was emphatic about the fact that he has not the faintest idea as to whether stocks will be higher or lower a month – or a year – from now. But he believes that it’s likely that the market will move higher, perhaps substantially so. But definitely well before either sentiment or the economy turns up.

So once again we reiterate what we said earlier. Please do not sell your mutual fund investments. Do not stop your SIPs. And if you have money to invest, don’t put it all in fixed return instruments. Feed it into the market until you reach your target allocation in equities.
Remember, stocks are excellent long-term investments, but dangerous short-term bets. Stay put.