Heads you lose, tails who wins?

Sentiments have changed for the better. Everyone suddenly is gung-ho about the long term. But, don’t rush at one go. Remember, long term is a series of short term impacts. And during any of these short terms, things may suddenly look different – again.
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Dec 13, 2008, 03.21 PM | Source: CNBC-TV18

Heads you lose, tails who wins?

Sentiments have changed for the better. Everyone suddenly is gung-ho about the long term. But, don’t rush at one go. Remember, long term is a series of short term impacts. And during any of these short terms, things may suddenly look different – again.

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Heads you lose, tails who wins?

Sentiments have changed for the better. Everyone suddenly is gung-ho about the long term. But, don’t rush at one go. Remember, long term is a series of short term impacts. And during any of these short terms, things may suddenly look different – again.

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“Wall Street people learn nothing and forget everything.”

                                                          –         Benjamin Graham

By Haresh Soneji, CNBC-TV18

Call it the half percent GDP shot or whatever you may want too. But, things now clearly appear to be bullish, suddenly. The big question – why the trend reversal? Is it because the results of the state elections then? The likely answer – unlikely. Whatever it is – there is a clear reversal of sentiments. FIIs have suddenly turned net buyers, which is a good sign. Two weeks back, this column stated that terrorist attacks lead to strong LONG TERM bottom formation. But, just don’t go full throttle. Click here for data (The Bailout Brouhaha & The Mumbai Attack http://www.moneycontrol.com/india/news/market-outlook/the-bailout-brouhahathe-mumbai-attack/14/06/368473 ).

On the other hand, China’s export fell in November for the first time in seven years. It is elementary. China is the world’s factory. But, US and Europe are the major consumers. If they cannot afford to buy, the factory must cut down on production. After all, demand destruction from the West cannot match demand from the East. The ratio is not 1:1; it’s more like one unit for every three units consumed in the West. In effect, China has slowed down and will continue to do so. No doubt, the World Bank this week said world trade will see a negative growth in CY09. It’s one big negative.

Back home in India, even the government is concerned now. From GDP estimates being cut to the RBI stating that FY10 would be worse than FY09, things look dismal. International agencies place India’s GDP growth at 5.8% for CY10. The key takeaway however is that India will see a growth when the world will continue to be in a full blown recession.

That brings us to the important question that many of us are pondering on – how bad could the world recession really get and for how long? There is one consensus on this – its going to be longer and deeper this time round. So, don’t rush with your money. There have been instances when the best of managers have lost it all. Consider William Miller of Legg Mason Value trust, known for his contra bets, who outperformed the market every year since 1991. Envied by all fund managers, until he made the mistake of investing too early and destroyed 58% of all assets during the current year. It’s a lesson for all those who are inching to rush ahead, including value investors - a stock may look tantalizingly cheap, but sometimes that's for good reason. The other lesson learnt is – never average on the down tick.

Just one counter argument. Even Warren Buffett is bullish. He started buying into US equities sometime back. The difference between Mr Miller and Mr Buffett is that Buffett started to invest selectively only recently. In India, Rakesh Jhunjhunwala was quoted Thursday in a Bloomberg report, "India will see the mother of all bull runs in the next four or five years, boosted by double-digit economic growth and increased investment by domestic investors, including pension and insurance funds."

From legendary investors to common souls, things start to look different. Analysts all over the world have suddenly turned bullish. There have been quite a bullish undertone in the statements from international market watchers such as ‘if you have the time (say, six years) and patience, you may want to carefully consider the markets’ and ‘markets look attractive for the long term investor’.

The conclusion is yes, sentiments have changed for the better. Everyone suddenly is gung-ho about the long term. But, don’t rush at one go. Remember, long term is a series of short term impacts. And during any of these short terms, things may suddenly look different – again.

Disclosure: The author is not permitted to trade and/or invest into the equity market directly or indirectly, apart from investing (long only) in mutual fund products. His equity exposure is only to the extent of ESOPs granted by the employer.

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