It has been 6 years into my investing career. I recommend not to blindly following professionals appearing on Television debates and social media gurus. If you trade in the stock market, you should consider yourself an active participant and have your strategy. It is funny how some brokerages give calls like 3%, or 5% short-term upside on a stock. Ask yourself what’s the need for expert advice for a 5% move, that too in Large Cap stocks like SBI, HDFC, etc?
When no one takes responsibility for your investments, does it really matter if the calls are from registered advisors or not? Unless retail investors are sincere about their investments, this drama continues forever. Dependence is the second worst thing for an investor or trader in stock markets.
Hope is the worst characteristic for an investor to possess. I remember buying put options during the Covid-19 bull market start and hoping that markets would fall, which never happened. We can make money in the market only if we are strict, disciplined, and unemotional about our investments.
Biased and Lagging Information on mainstream media and websites:
My stock market portfolio has been down 8% since June 2022, with some stocks down 60%. It is common in stock markets, and we all know META, the parent company of Facebook, its shares fell by 76% to $89 from its all-time highs in 14 months from September 2021 to November 2022. It is now trading at $207.8 up 130% from its lows in November 2022. I have read many articles on financial websites about investors losing faith in META and the company removing their employees. It was as gloomy as if tech companies had met their dismal fate. In the meanwhile, experienced investors were loading up these tech shares.
Now we get to see articles on how FAANG stocks have regained their bite. The information available on public platforms is mostly outdated. How can Facebook at $200 is more attractive than it was for $90 or NASDAQ100 at 12000 than it was at 10100? It is all about mindset when it comes to making money in the stock market. If we miss the first 20% of a 50% upside move from the bottom, we will lose 40% of the overall move. As the legendary investor Warren Buffett says, “Be fearful when others are greedy, and greedy when others are fearful.”
Do you know why professionals never give buy advice when the markets are falling? It’s because they too cannot analyze the market behavior. When the markets start correcting or crashing, it is always erratic, clumsy, fearful, and uncertain. Almost all the trading is based on algorithms, one sell order triggers another sell order and the panic selling starts.
Banking System Crisis:
Stock Markets had their worst time in the last 15 months with rising inflation and countermeasures from central banks like hiking interest rates. Banks investing the clients’ deposits in fixed-income securities like Treasuries and Mortgage Backed Securities during pre-Covid and Covid times paid the price for their unethical investment practices and their failure to prepare for rising interest rates in the future.
Silicon Valley Bank, First Republic Bank, and Credit Suisse are a few names to remember every time we plan to deposit money in a bank. Now that people have come to know about these shenanigans and depositors rushing to withdraw their deposits, central banks and deposit insurance corporations have started their disaster management strategies bailing out banks once again.
As of today, we should be relieved that the Banking system in India is better regulated. Make your deposits in a well-acquainted bank with a low NPA percentage and learn about insurance coverage rules and regulations for bank deposits.
Here’s the link to the official page of Deposit Insurance and Credit Guarantee Corporation
Is Stock Market in a bubble?
So is the stock market in a bubble? The answer is NO. Recently, I have come across an article on Market Watch stating stock markets are in a bubble and a crash is imminent. Well, I do not know whether a crash is coming or not, but bubble is not an appropriate word to use for current market conditions. S&P500 has a forward PE Ratio of 17.75, and NASDAQ100 has a forward PE ratio of 24.85. Unless FED continues to raise interest rates aggressively, ignoring the upcoming pitfalls of defaulting on a $30 Trillion credit system and a consequential economic collapse, the chances of a stock market crash are minimal.
The present situation is different from the 2008 Global Financial Crisis; it was the failure of banks and other lenders dealing with junk bonds packed with Unsecured Mortgage Backed Securities. Today, banks are struggling with unrealized Mark to Money(MTM) losses. Previously issued bonds and treasuries had begun losing market value due to aggressive interest rate hikes. It is a liquidity crisis, and central banks have started rescue measures for the banks.
S&P500 has lost around $7.16 Trillion since December 2021 ($40.36 Trillion) to $33.2 Trillion as of 30/03/2023. It is 34% more than the market cap lost during the Covid-19 crash ($5.34 Trillion). Markets have had their fair amount of correction with interest rates mounting up to 5% from near zero in 14 months. Any further, the chances of the FED raising interest rates to that magnitude are infinitesimal.
Indian markets:
Coming to Indian markets, Nifty50 has gone nowhere since August 2021 and it is a solid consolidation of 20 months. Our markets have done better since the interest rates and inflation are managed efficiently here compared to western nations. Nevertheless, Nifty is underperforming DOW30 by 5% YTD as of 30/03/2023. Foreign Institutional Investors are booking some profits and allocating their funds to Chinese, US markets, and other markets because of the cheaper evaluations. The ongoing banking crisis also added to investors’ fears since most of our IT companies have around 30% to 40% clientele from the US and Europe Financial Institutions and Banks.
It seems central banks and governments of the US and Europe have the situation under control now. The US 2-year Bond yields back above 4.1% indicating the easing risk appetite of investors. Last week, 2-year bond yields slumped to 3.6% from 5% in less than three weeks. Indian markets should also witness an upside move over the coming months making new highs.
Conclusion:
As an investor, never try to time the markets. We cannot do much if a sudden crash comes and erases all over gains or, even worse, cut down our portfolio by 50%. Personally, I like this quote from Peter Lynch, “Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves”. Educate yourself on how to hedge the portfolio and diversify the portfolio among various assets such as Equity, Debt, Gold, etc. Invest for the long term and never put borrowed money in the markets. Keeping track of global and domestic economic conditions like inflation, interest rate hikes, and other crises gives an investor an extra advantage over counterparts.
Disclaimer:
I provide the information and my views on the website only to educate new investors, stock market enthusiasts, and the common public on equity and other market investments. Please consult a registered financial advisor before making any investments in the stock or commodity markets. In case of any queries, you can contact me on Contact Form.
