Time to Buy, Sell?

There’s very little that is really new in the world of investing. The same patterns of bull runs and bear phases reoccur, and they provoke investors to act in the same ways. Investors–sometimes new investors but very often the same people–tend to do the very same things right and commit the very same mistakes. So here we are, in the start of the year 2006, with the Indian stock markets higher than they have ever been, and seemingly, in the middle of a bull-run that emerges stronger every time it falters. At a time like this it is difficult for an investor to figure out what to do, either with his existing investments or about fresh investments that he’d like to make. In all bull-runs, our instincts suggest that this could go on for a long time. Of course, rational thought suggests that it can’t but then, the sight of the numbers in the pink newspapers marching upward banishes all rational thoughts from investors’ minds. The dilemma is self-evident, since we optimistically believe that the bull-run will go on. This suggests that we should hold on to our holdings and banish all thoughts of selling any equity assets. Selling them while the market is rising seems like a stupid thing to do, the equivalent of throwing away ready money that is there to be taken. Sometimes, we think of booking profits but while stocks are rising, the obvious thing to do is to buy even more equity assets with the profits that we have booked. And the massive temptation to buy equity assets now, right now, rages unabated. As proof, just look at the kind of money that mutual fund IPOs have collected over the last few months. India’s investing public has well and truly loosened its purse strings and is lavishing money on equity funds. While the wisdom, or otherwise, of investing in fresh new funds without a track record is a separate issue, the equity fund IPO boom clearly indicates that investors are unable to resist the temptations of believing that the bull run will continue. This is a mistake. So is Value Research saying that stock prices will fall soon? No, that’s not why we think this is a mistake. Stocks may not fall for years. It is possible that we could be–and we’ve said this before–at the beginning of a historical uptrend that could see the indic

This article was originally published on January 02, 2006.