World as I Think

I have always had this strong conviction, every living organism is selfish and it tries to protect itself and survive when things are against the tide and tries to ride it when it soars up and in both the cases tends to overrule the greater good. I could get the glimpse of the selfish sadist in me today.

I have been investing in the markets for the last six months and have made some healthy profit till the beginning of this year. Things were in euphoric mode, investing in any crapy stock gave handsome profit and irrational exuberance prevailed. Experts were divided about the journey the indices were about to take, I was strongly advocating a case that Indian markets were headed south before going north again. I was greedy as well, I knew i had to move into cash but the nagging greed of marginal profit kept me in the market, One sane thing which i did was to move most of my investment into a single stock which was fundamentally strong.

It was a Monday, at last I said enough is enough, I was planning to move in to cash and book losses, Murphy reincarnated, the markets crashed by 10%, there was a huge dent in my the portfolio and I was in a precarious situation, the loses were far from marginal to be booked. I decided to wait with a false hope that prices would go up although I had advised my other friends not to dive into the market as the markets are expected to see a further carnage. A rational decision would have been to sell the stocks at lower prices and catch them at even lower prices. The markets fell by another 10% next day. There were few who short the market (selling a stock at higher prices without owning it, expecting it to fall so that you can buy them back at lower prices and settle the transaction) who were happy and talking about a further trough. People who were invested must have seen at least 30% shaved from their peak portfolio value, we were thinking, How sadist of the people who wanted a further fall (in fact it is a very rational expectation about the course of the market after the illogical upward movement since last October).

Things calmed down in the market, I borrowed some money and bought the stocks at lower prices and averaged out my portfolio (process of averaging the cost of stock by buying the stocks at lower prices when one has the same stock at higher prices).The Fed came to the rescue of the US markets and sense of relief spanned across the globe, the markets recovered, the markets had technically rebounded from the bottom. I woke up yesterday and to my surprise the markets didn't bounce back even after Federal reserve cut the rates again, something told me that this is a temporary relief and almost completely sold my portfolio and moved to cash, booking marginal loses.

There are several logical reasons why I felt the markets are going to crash again

The US is expected to slow down significantly and hence the US markets are expected to severely correct. US still contributes to 25% of the world GDP and it would definitely impact the other markets. The markets would be first stripped completely before giving their due of "growth stories”. Any number of bailout, be it credit, residential, insurance or economic stimulus is not going to solve the structural problems of US. It's time for the cycleonomics, what goes up should comes down!.

It’s high time the bubbles burst; the cruel some part of the current bull run is that almost all the asset classes (equities, commodities and real estate) are at the peak. Sooner or later they are going to burst.

An market should go up to the extent to which the earnings grows. Indian companies have had an average growth rate of 20% and the trend is expected to growth by 15% to 20% for the next five years atleast.We gained a massive 50% in the last four months of last year without any valid change in the fundamentals, so essentially they have to correct by 25% to be fairly valued. The FII's who had parked the money in our markets are booking handsome profit taking it back to their country.

Technical analysis suggests that we are in the last leg of the downtrend of the "Elliot wave", so ideally we should fall another 15%.

So you must be asking what is sadist about this?. I am expecting the market to fall steeply, now that i am safe.Infact, I know that most of my friends have their portfolio are in negative territory and retail investors would get slaughtered if it moves further down but I still feel happy about my call. In fact, we are all facing the brunt for chasing greed and irrational prices but we all loose money and sleep!

Labels: economics