The year 2013 has ended. And today being the first Sunday of 2014, I have luckily got some free time to sip a cup of hot coffee and to think about what might happen in 2014, and how it would affect stocks, investments and my portfolio.
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| First Sunday Coffee || 2014 |
Indian Markets Are Not Cheap
With large cap indices like Sensex and Nifty50 trading at 18-19 times earnings, it is quite clear that as of now, Indian markets are not (very) cheap. [Read more about how to know whether Indian markets are trading cheap or not here]. Experts might tell you that current PE ratios are 14 and 15. But that is because they are considering earnings in 2015 and 2016. Not 2013 and 2014. So, don’t believe too much of what experts have to say. And if you like watching business channels like CNBC, then do it for just one reason. 😉
Keep Cash At Hand
If the markets are not cheap, then it’s a good idea to stay out of markets for the time being and start hoarding cash. Because it is only a matter of time, when markets would once again regress towards the mean and correct (valuation wise) and give some tremendous buying opportunities. And you don’t want to run out of cash when there is a distress-share sale. Isn’t it?
Invest In Business, Not In Politics
With Aam Aadmi Party’s surprising win in Delhi, it seems that everybody has become an expert in politics. And with BJP and Congress ready to fight it out in the coming elections, it is inevitable that someone, somewhere would recommend you to buy shares of companies which might benefit from either party’s coming to power. Though it may seem like a good idea to buy stocks of companies which are friends with possible election winners. But this can be risky. You can never be sure of who is going to win these elections. Did any one of us had even a slight idea that within 6 months of active politics, Mr Kejriwal would become Delhi’s CM? So the point which I am trying to make is that almost anything can happen in politics. It is better to buy shares of a company because its business is good and its shares are available at a good price. And not because its owners are friends of Prime Ministers-To-Be. Period.
Beware Of New Banks
With only a few months remaining before the new banking license are awarded, its obvious that one would become quite excited about this episode and try to guess the names of new banks before RBI does it. Though it seems and is highly possible that prices of applicants who get the new banking licenses would soar, the fact remains that banking as a business is not easy. And though India is under-banked, it is also true that the existing banks are pretty strong and would not allow new players to take their turf easily. So, I am not saying that don’t buy stocks of new applicants. I am just saying that it’s a bad idea to become over excited about the whole issue. Just be fearful when others are greedy. Remember Reliance Power and you will understand what I mean. 🙂
I Am Not Investing To Beat The Index
This thought is something which has always been one of my key decision makers. I have always believed that money should be available when one needs it to be. And that should be the whole purpose of investing. So, it does not matter whether I am beating the index or not, as long as I am able to fund my needs, desires and at times, greed(s) 😉 So beating the index would be great, but I am not Warren Buffet, and I am not going to loose even one night’s sleep over it.
So that’s it. These were some of my early-morning-first-sunday-of-new-year-thoughts :-).
I would be happy to hear your thoughts as well as your arguments against my thoughts. It’s always better to debate the initial (raw) thoughts rather than older (established) ones. So do let me know…
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Beating the index to the extent of the equity component of ones portfolio is the purpose of personally constructing a portfolio. Otherwise one can just buy the index .
You are right Jacob.
But personally, I still am learning everyday from the markets. And consequently, prefer investing more via the MF route and less through direct equities.
And since the aim of my main portfolio is to fund my future expenses and asset purchases, I prefer to stick to safer and less riskier stuffs and hence less of direct equity investing.
But yes, most people investing directly in stocks aim to beat the index. As far as I am concerned, I would love to do it myself. 🙂
Well said shaq. 'We are not others'
So our targets should not be what others have achieved.
' And consequently, prefer investing more via the MF route and less through direct equities.'
i like to share my observation and learning in this regard.
i
am totally a diversified equity mutual fund investor as far as equity
portion of my portfolio since last 4 and 1/2 yrs . since last one year i
came across two last wealth creation reports of a well known brokerages
, and i found a hundred companies delivered handsome price cagr return
compared to sensex over 5 yrs. period in both reports. as such, in last
report, the 100 companies gave average price return over cagr 17% v/s
cagr 4% by sensex. i thought , it could more beneficial to be in direct
equity rather than through diversified mf route , as good no. of
companies are available for such return in indian market. incidentally i
come across the performance data of pms plan from the same brokerage. i
found that though its performance over 10 yrs. is better than sensex by
good margin after expenses, some 15 diversified equity mfs from large
cap category gave better performance than the pms, and some 40-50
diversified equity mfs performed better than that pms in last 5yrs, 4
yrs and 3 yrs..so i learnt that back testing and finding is one thing ,
and achieving excellent performance (read to be at the top!) is all to
gather different. be with the good diversified mfs over period of 10 yrs
rather than direct equity investment .
Thanks for sharing your experience Bharat. Its true the for average investors like us, its always advisable to stick to basic things like investing regularly in mutual funds through SIP route. In that way, we actually reduce the chance of being totally wrong in markets. And that is very important in the long run.
Please share with us , which fund house & fund is good through which we can continue sip for at least 3-4 years..or longer…I believe in long term investing….will need this money after 10 years..
good , stick to quality value businesses in new year
Fingers crossed Pramod. 🙂