Expert opinion: Take it with a pinch of salt

Experts frequently teach investors not to follow the trend. But what do the experts do? In fact, experts around the world follow the trend more religiously and give their expert opinions that change with the trend.

 

Oil

Understanding the oil market and making reasonable forecasts have proved to be an impossible task for the best of  experts. When oil was rising past USD 60, USD 65, USD 70, USD 75 experts feared it would reach an alarming USD 100 per barrel. It touched a historic high of USD 79 per barrel on August 8, 2006. Over last 4 months, it is continuously falling and now it is around USD 60. Today, analysts are looking at a level of USD 50. Suddenly the alarmists who foresaw an imminent era of oil scarcity are silent.

 

If crude starts moving up again, the same experts would then change their opinion and start saying that crude will go up to USD 75 per barrel.

 

Interest rates

The scenario was very much the same when it came to interest rate movements. Everyone thought that India will witness further hardening of interest rates in the coming months, but now we have situation where the banks have started talking about softening of interest rates.

(Also read - Hiring a financial agent? Ask him these questions )

 

Gold

Speculations were very high when gold crossed the Rs.10,000 per 10 gram mark. Prices were expected to touch Rs. 12,000 by Diwali. A leading newspaper had carried an article on the same. By Diwali, the prices fell back and it was quoting at below Rs. 8,500. And now experts are talking about further lower levels.

 

Stock market

To be bullish or to be bearish - it's a million dollar decision at 13,500 level. As always, it is not just difficult but almost impossible to predict short term market direction. What if you invest a huge amount today and the market falls by 10-20%? What if you wait for a correction and market crosses 14,000? Liquidity and sentiments will drive the markets in short term, and no amount of experience and study will help you predict that.

 

We all know how wrong the predictions of all experts have been throughout 2006. No one in January 2006 predicted sensex touching 12,600 levels as early as May 2006. No one expected it to fall back to below 9,000 levels then. And no one had the foresight of predicting such a sharp rally of over 4,000 points in just 5 months. When the markets were rallying, most of the analysts were pegging the sensex at further higher levels. During correction phase they were bearish.

 

Now let's see how encouraging the views of experts at current sensex levels are.

 

CEO of a Mutual Fund (Dalal Street, Oct 30-Nov 12 2006)

14,000 by March - April 2007

20,000 - 24,000 in the next 3-5 years

 

Director of a Brokerage House (Dalal Street, Oct 30-Nov 12 2006)

In medium term (8-9 months), the sensex has still steam to touch the 15,000 mark

 

JM Morgan Stanley Financial Service (on CNBC, Nov 20 2006)

Sensex at 15,500 by Feb - Mar '07

 

Citigroup Report (Economic Times, October 16 2006)

Citigroup report pegs the sensex level for July 2007 at 10,700.

 

Can the expert's views be so different from each other's?

 

Confused?

Then stick to basics, invest regularly without trying to time the market and think long term - this would surely lead you to become a successful investor rather than getting various expert views only to confuse you It's a long term secular bull run and there is much more to mint in the next many years to come. Volatility will persist, but when and with what intensity is nobody's guess.

 

(Also read - Tips for choosing the right team of financial advisors ) 

 

Before concluding, my advice to you would be:

Prefer equity mutual funds to direct stock investing. Always have future winners in your portfolio. And don't go just by past performance. 

 

Good Luck!

 

The author, Jaydeep Kashikar, is Director, BrainPoint Investment Centre. You can visit him at www.brainpointinv.com .

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