As human beings we are taught you must always make a judgement or find rationale for a certain happenings. So you are always using your intellect to judge some one or a situation or an event.. or if the event or action is already happened we are trying to rationalize. If historically the sensex has corrected a bit after a quick run up of say 4000 points, we rationalize that the same would repeat every single time. Coupled with this is our human tendency for arriving at MEAN. Many investors in the stock market believe that what goes UP has to come down and what goes DOWN has to come up.. in real life things don’t always work that way.. hence you have lots of people making wrong judgement calls on the market.
So what’s the answer to the above question, we would say equity is a long term game, and equity investor must be prepared to face some short term downsides upto 20-25 % even of his investment.. while the long term trend continues to be very positive. If you can’t be at 80% of your investment for 3 years.. don’t invest in equity..if you can then you deserve the riches that it brings.
Reasons why the long term looks positive.
Indian economy is likely to grow at 7.50-9.00 % over the next few years.. and that will be the fastest growing economy in the world.
Global money and domestic savings a key resource to drive up equity markets.
Economy to expand to make the valuation seem reasonable. In the next 10 years experts believe the Indian economy has the potential to be 3 to 4 X of its current size… hence there is enormous excitement from Foreign institutions and investors.
Key Government initiatives like Demonitisation and GST to bring more action into the organized economy reducing the unorganized economy to insignificance over a period of time.
To make money in Equity Markets :
In equity investing look at long term and ignore the short term volatility, stay invested .
Stagger your investments instead of ONE LARGE LUMPSUM investment, that way you will get to benefit from volatility rather than being a victim.
Equity should be one of your investments, keep money in fixed income and bank accounts for any liquidity and emergency needs.
Use mutual funds if you don’t have the time or knowledge of stocks.
So don’t JUDGE the market levels.. just think long term and stay focused on growing your equity corpus in the long term.