Sensex @ 30,000: What Experts Won’t Tell You

The S&P BSE Sensex has breached the 30,000 points mark. Celebratory cakes have been cut, and anchors of business channels have experienced bouts of ecstasy on live television. The print media has published statistics on markets' journey and performance. Clearly, these quarters are abundantly excited.

With investments delivering handsomely, investors have reason to cheer as well. However, not every investor shares the excitement palpable in the media. For some, markets touching record highs has led to anxious moments. These investors have been singed by markets in the past, especially after sharp surges.

For such investors, the all-important question is: Where are markets headed next? Will they continue to surge, or is another crash on the cards?

As is often the case, investors are seeking answers from experts who routinely feature in the media. However, even a cursory glance at quotes and op-eds reveals that experts have chosen to tread the middle path.

For instance, they strike an optimistic note by mentioning India’s strong fundamentals, conducive macroeconomic environment, expectations of robust flows. Simultaneously, they sound a note of caution by speaking about how earnings have failed to keep pace with markets, expensive valuations in certain market segments, and global factors such as the US Fed's stance.

It is evident that investors who are seeking an unambiguous answer from experts will be disappointed.

And, here’s why—No one knows where markets are headed in the near-term. While experts can make reasonable estimates of how markets will play out over the long-term, predicting near-term movements is anyone’s guess.

The trouble is that no expert will risk losing his ‘halo’ by publicly saying “I don’t know how markets will behave in the near-term”. Likewise, no print publication or channel is interested in quoting an expert who says so, or simply advises investors to focus on the long-term.

As a result, investors are subjected to convoluted and non-committal views from experts.

What investors must do

On their part, investors would do well to look inwards, instead of relying on experts.

Investing is a personalised activity. In other words, a ‘one size fits all’ approach doesn’t work. Hence, investment decisions must be made in line with one's risk appetite, temperament, and investment goals.

For instance, investors who are overly worried that an imminent crash might wipe out their gains, shouldn’t hesitate to book profits. In particular, investments that don’t agree with their profile; now is a good time to exit them at a gain.

Investors who are at ease with the vagaries of markets should continue to invest in line with their plans. For such investors, any downturn will present an attractive investment opportunity. 

Investors who find themselves between the extremes, can consider adopting a wait and watch approach.

The key lies in making a choice that works for you, and standing by it. That will lead to a far better investment experience, than relying on an expert who speaks half-truths.

How Investors Can Make The Most Of Market Volatility

Equity markets have been on a roller-coaster ride this week. After posting one of the largest single day falls (roughly 6%) on Monday, today markets staged a minor recovery of sorts. Not surprisingly, business channels and newspapers are dissecting every market development in great detail. Experts are busy predicting where markets are headed next. On their part, investors are tuned in with rapt attention.

While investors’ engagement with the external environment is understandable, this is indeed the right time to do some soul searching. The latter can prove to be the proverbial silver lining in this phase of market volatility. Surprised? Read on.

Equity investing is not without risk given the uncertainties involved; over shorter time frames, the risk is further accentuated given that even extraneous factors can significantly impact stock prices. As a result, while investing in equities/equity-linked products, one needs to be able to take on a certain degree of risk. This in turn necessitates an accurate assessment of one’s risk appetite. Sadly, that is easier said than done. When markets are rising, investors can erroneously start believing that it is easy to make money in the markets. This can lead to an inflated notion of one’s risk-taking ability. 

Harsh as it sounds, a volatile phase like the present one can provide a much-needed reality check. Now is the time to revisit your assessment of the risk you can take on. Ask yourself if you are yet as comfortable with equity investing as you were when markets scaled record highs earlier in the year. While an investment advisor can help with this exercise, you will have to play the most important part. If an honest introspection reveals that you have jumped the gun, don’t worry. All you need to do is rejig the portfolio so that it aptly reflects your risk appetite.

This is also a good time to evaluate if you’ve fallen prey to the ‘Keeping up with the Joneses’ blunder. At times, because a friend, relative or colleague claims to have done well with his equity investments, investors feel the urge to emulate his investments. The trouble with this approach is that it violates a basic tenet of investing. At its core, investing is a personalised activity. Investments have to be right for the investor in question. Hence, adopting the ‘one-size-fits-all’ approach can lead to unpleasant results. 

For instance, the friend (whose investments you have copied) may have a portfolio dominated by equities, since he has an investment horizon of a decade; conversely, you may have an investment horizon of just three years. In such a scenario, replicating his investment pattern wouldn’t be the best option. Yet again, it takes a bout of volatility to expose this inherently flawed investment practice.

Admittedly, market volatility can be a bitter pill to swallow. But the fact remains that while investing in equities, it comes with the territory. Rather than fretting over it, investors would do well to embrace volatility, and use it to their advantage by sharpening their investments.