Friday, September 12, 2008

When Markets Tank

There is music in stock market panic. There is pleasure in seeing gloomy faces of men once famous and rich by putting more and more money and less and less time in stock market investments. Making money, after all has never been easy, and the moment it starts appearing too easy there is something wrong about it. As they used to say in 2007, the only way you cannot make money on stock market is if it is closed.

Today, there are different scenes, people are looking for recluse in FMPs, and stocks aren’t as sexy as they used to be. The roving queries for the next big tips have started getting muted. But they haven’t jumped the ship yet. One look at the money inflow from Mutual Funds suggests, there is fresh inflow every month, and most of the liquidity being taken away is essentially FII money. People are skeptical, people are scared, but they haven’t jumped ship yet.

Tops and Bottoms

Signs of markets bottoming out are as visible to the discerning eye as the signs of markets topping out. The markets top when you cant track the number of public issues hitting the markets, and their valuation being done on anything else but earnings. When you start hearing about innovative valuation methodologies like Price/Imagination ratio, eyeballs, footfalls, landbanks, embedded valuations, the next big story, its not the same this time, that’s the time to get scared. When everyone asks for tips, is the time to be cautious, and when everyone starts talking about the multi-baggers they made and start offering you advice that is the time to run.

Similarly, when AUMs start decreasing, dividend yields for growing Companies start exceeding the interest rates, people start talking about cash bargains and the stellars of the bull run starts falling like nine pins that is the time to get into it. America has started to see those signs, where the architects of innovative structures like sub-prime securities being sold multiple times over, the bankers have started going bankrupt and housing is in doldrums. In India, the real estate stocks have seen a tumble, but my sense is, till the time we see panic selling in the real estate markets couples with a few takeovers, few guys going virtually bankrupt, and the markets would not have bottomed out. The effect of Chinese recession is yet to seep in, the hefty mutual fund redemptions are yet to kick in, that is the time markets are going to get really sexy.

The taste of Saliva and the lump in my throat

Just the taste of Saliva, when you think of such a market scenario, makes my eyes glow, makes my heart warm, I can’t wait for the thud, can’t wait for the opportunities to buy things at price of dirt. I have been investing, but I am also in cash. Now that the high tide is over, the panic stricken brokers, the high-flying bankers, the insightful analysts all stand naked today in front of the world. People have lost their lives fortunes; few will lose their houses too in very new future. I empathize and understand their pain, but like in life so in markets, its not the most intelligent, it’s not the smartest, it is always the person with the strongest character who is standing the last. Only those whose long term resolve and character are stronger than bouts of fear and greed will survive. For all my love for the stock market, I hope I read this post in every market excess to remind myself of my long term resolve and discipline in investing. I have made my mistakes, I have even repeated my mistakes, but I sincerely hope I will learn from each of them. For everyone else and for myself too the war is not over, far from it, (actually it is never over) just remember whenever you loose a bet “don’t lose the lesson”.