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Thoughts – Money Linked Mindlessness, Valuations, False Hopes!

You would be lying if you said that you are not waiting eagerly for the First Full Budget, by the First (Real) Full Majority Government, to have come in power in decades…

Like me and other common men and women, you would be interested most in tax related announcements. Whether you will be able to save more taxes this year? Will you get more deductions for your home loan repayments? Or will there be no change at all? 

But think of it….we focus so much on saving taxes….and so little on correcting our money related common sense.

– We buy insurances to save tax!! And to top it all, we call these insurances as ‘Investments‘ under some section 80C. Ridiculous!!

– We want to Invest for few months. But we Save for years. Ridiculous again!! (Why?)

– Everybody wants to know the name of that next multibagger stock. But nobody is ready to put in the effort to find it. Its just like saying that everybody wants to go to heaven, but nobody wants to die. Ridiculous!!

– We want to double our money overnight. And that does not happen. But we will not understand this simple fact, unless we burn some of our hard earned money. Ridiculous!!

– Currently, Indian markets are trading at almost 24X multiples (Proof in image below). But people are buying stocks like all of them are value investors. Ridiculous!! (Why?)

Nifty P/E Ratio (16-Feb-2015 to 20-Feb-2015) – Source: NSE Website


– I have this strange feeling that number of people calling themselves as Value Investors increases during Bull markets. But theoretically, this number should be more in Bear Markets. But surprisingly, its more in Bull Markets. Ridiculous!!

– Everybody believed that new government had a magic wand and it will change everything in a flash. But its almost a year, and frankly speaking nothing much except talks (some are calling it false hopes) have been delivered. But markets are still making new highs every few days. Ridiculous again!!

Apologize my rants 🙂

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Written by Dev Ashish

Founder - Stable Investor Investing | Personal Finance | Financial Planning | Common Sense

9 comments

  1. Interestingly even I was thinking on these lines a few minutes back when a link to this article popped up on Twitter. Agree with all of them Dev

  2. The article posted below is from Times of India dated 17th Feb 2015

    Equity mutual funds add 1.2L investors a month in 2014-15

    With the markets on a strong wicket, equity mutual funds (MFs) have added nearly 1.25 lakh folios or investor accounts a month so far in the current financial year. Fund houses have added over 4 lakh accounts in January alone taking the total folio count in the equity category to about 3.08 crore at the end of the month.

    Equity schemes have seen an addition of 12.32 lakh investor accounts since April, data with market regulator SEBI showed. Investor accounts in equity-oriented MFs crossed the 3 crore mark in November for the first time since 2012-13 on the back of strong interest in equity-related products.

    The assets managed by equity MFs (including equity-linked savings schemes or ELSS) also surged past the Rs. 3 lakh crore mark for the first time in November. It stood at a record high of around Rs. 3.41 lakh crore at the end of January, data with the Association of Mutual Funds in India (AMFI) showed.

    “Retail investors are coming back. There is optimism at every level as the markets are consolidating (gains) now,” says Himanshu Vyapak, deputy CEO, Reliance Capital Asset Management. “The confidence level among investors has gone up as they are seeing good positive returns in their portfolio,” he says.

    “It is largely because of NFOs (new fund offers). Investments into tax-saver schemes have also picked up,” says Raghav Iyengar, executive vice president, ICICI Prudential MF. Equity NFOs, which gathered momentum after May last year, have mobilised nearly $1 billion (Rs. 5880 crore) between November 2014 and January 2015.

    Net inflows (higher purchase by investors than exits) into equity schemes (including ELSS) touched nearly $10 billion (Rs. 56708 crore) between April 2014 and January 2015, AMFI data showed. Net outflows stood at Rs. 7915 crore for the same period the previous year.

    The total number of folios managed by fund houses have been on a steady rise ever since the post-election market rally started. Investor accounts under the equity segment fell 12% year-on-year (y-o-y) to around 2.92 crore at the end of March 2014, the lowest level since March 2007.

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    Hi Dev,

    As per above article, retail investors are coming back to equity.

    Since 1st April 2014, the Nifty PE never came below 19PE and for most of the period was moving between 19 – 21 and currently it is near 24. Based on past data and returns, the best time to invest in market is always below 15-16PE. However, the retail investors ignore and leave the market at those valautions which was available in major part of 2013 and and come in to the market betweeen 19 – 24 in last year. Now at some point when the market returns to its mean say 16-17, they tend to lose the capital again and flee the markets.

    Somehow, the confidence level among investors always goes up as they are in 22+ PE zone.

    Mr. Prashant jain once told exactly the same that every time a retail investor tend to invest more in High PE market and flee at the low PE market, whereas he should be doing exactly the opposite.

    Just ICICI alone has mobilised nearly $1 billion (Rs. 5880 crore) between November 2014 and January 2015 so one can easily makeout why the market is going up without any change in EPS (i.e. only PE is going up). It is simply more and more money buying the same asset to move it higher. Since October 2014, Nifty PE never came below 20.

    Its time to be cautious and its time to adjust your asset allocation. If you are not investing for 10Years + period don't invest in this market now!

    Regards

  3. Dev, probably you should do an article on NFOs. Many people invest in NFOs as if they are investing in IPOs with deep discounts for individual investors (or atleast that is how MF houses market NFOs).

  4. Very true Dev, I'm feeling utterly confused in this tempting bull market and only continuing with my MF SIPs (which I started 2 years back). I wonder if I should cut down my MF SIP by half and hold on to that amount in some debt fund until P/E come below 20 level, and then do lumpsum investment.

    What investment strategy are you and fellow investors are taking in the current bull market which is showing no signs of cooling down in near future ?

  5. That's true Prachi…like IPOs even NFOs tend to get launched during bull markets and that is where average investors get caught in the hype of easy-money.
    Will try doing a post on same sometime soon.

  6. Well said Ajay….can totally relate to what you mentioned.
    And I think that even if a hypothetical investor was allowed to take just one kind of action, i.e. do the opposite of what retail investor is doing, then that particular hypothetical investor would beat 99% of the retail investors community..

  7. Hi Prachi
    Did a analysis of a similar approach in a post last month and I think that if you are investing for more than 10 years, then there is no point in parking half of your investible money in liquid funds…just continue with your SIP.
    Personally, I am continuing with my SIPs and not making any substantial direct investments in stocks.

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