Indian Markets At All Time Highs | Should You Buy? Or Should You Sell?

I recently shared this image on Stable Investor’s Facebook page.
Stock Market Buy Sell Low High

And to be honest, this is not the first time I am sharing this image with Facebook Fans. I have shared it more than thrice. And it is because the image is a very powerful depiction of what actually happens in our stock markets. Investors Market participants act so irrationally on just what they hear on the street that sometimes it seems market, is just one hell of an irrational place. But then this realisation occurs that it is because of this irrationality, that rational investors get an opportunity to make money in stock markets.
Just last week, markets hit a new life time high.
2008 Indian Market Crash New Highs
2008 – 2014 | Markets Reaching New Highs | But Does It Give Red Signals?

The rise this time is not as steep as it was in the run up to the crash of 2008. The PE of market at peaks of 2008 had reached almost 26!! Currently, markets are in more (not totally) rational territory of 18 to 19. But it seems that since 3 months, markets have started running ahead of their fundamentals. And if one uses a little common sense and is aware of stock markets, this can be cross checked with views floating in the market. Almost all experts of stock markets are coming out with buy calls and asking investors to go ahead and invest in currently rising market. And many are planning to ride this run up to the elections.
But a little rational thinking would make one realise that one should buy when prices are low, and not the other way round. Even the master investor Warren Buffet has said
And as of now, people intend to make quick money in the markets and are being greedy (to a degree).
But there is another interesting indicator which somewhat refutes the above stance. I just did a comparison of returns in last 5 years with that of returns in next 5 years. It was a simple exercise to see whether there exists a correlation between what has happened in last 5 years with what is about to happen in next 5 years.
And results of the analysis of 3614 data points (spanning more than 14 years) boils down to the following table –

Stock Market Returns 5 Years
Currently, Indian markets have given a return of almost 4.5% in last five years. This puts us in the second cell of table above; which translates into an average return of almost 14% in next five years. So does it mean that Sensex, which today stands at 21,919 would reach more than 42,000* by 2019??
* (Logic: This calculation is based on concept of compound annual growth rate. In this case, an average increase of 14% every year for next five years would take Sensex from 21919 to 42000)
I know you are thinking that this guy refutes anyone giving out predictions about future levels of Sensex. And here he himself is throwing numbers like 42,000 for Sensex in next 5 years!!
But please realise that this not me. It is the past that is speaking. And one cannot just depend on past data to predict future. So take the above numbers with a pinch of salt. Anyways, data is one thing and using this data another. So what should a sensible market-fearing investor do at this moment?
Since everyone is eager to buy, a sensible person would be better off not-buying. And if it means that you might just miss the next bull run, then so be it. It is always better to control the downside before worrying about the upside in stock markets. (My thoughts || You are more than welcome to differ) 🙂
If you have your SIPs in good mutual funds, then do not stop them. Just continue with them as in the long run, this stopping of SIPs might disturb the magic of compounding.  Keep accumulating money in fixed instruments to fund your next major stock buying opportunity when markets go down and everyone else is hell bent on selling everything they hold.
So, what are you going to do now? Will you buy? Will you sell? Or will you do nothing?

Indian Market’s New Life Time High & Why Stable Investor Was Silent?

First of all my apologies for keeping Stable Investor so un-updated for last one month. I know there should not be any excuses for something you are really passionate about, but this time around I was busy with preparations for the biggest investment of my life. No, I am neither buying a house nor a company. I am getting married this month. 🙂 So with so much preparations going into a typical Indian wedding, it’s the site that is paying the price with inactivity. But the silence has been broken and I intend to keep it that way.

(I even received an email asking me whether I had died because of some wrong stock pick) 😉

And it seems that just after the stocks in Dead Monk’s Portfolio were disclosed, markets as a whole decided to look at future through rosy glasses. Markets over the last one month have just been doing one thing, i.e. going up. And in that process, they have actually managed to hit new life time highs. And to be frank, markets are not looking cheap at all. With indices commanding multiples in excess of 18.3, this may not be a very good time to think about entering the markets. (Disclosure: I don’t believe in timing the markets much. Read why here). But as it always happens, when markets start moving upwards, retail interest in markets starts rising. And this once again happening now. People all around us have started asking for a hot tip or two to make a quick buck here or there. And this is how the process of losing money in the long term begins. But let’s keep that discussion for another day.

Sensex Nigh Highs
Markets Making New Highs. Reasons? Unknown.

I have been a little off-track for last one month and am yet to understand as to what exactly changed in the Indian economy that is forcing stock markets to run away like this. Is it because of new RBI Governor? Or is it the US’s delay in stopping the fund flow? Or is the economy really moving towards a better-than-yesterday scenario? Or is it that market expects some decent outcome from the coming general elections? Sadly, I don’t have answers to any of these. I am not a pro on answering any of these. But I would do what I am capable of doing. I would continue focusing on my long term plan of wealth creation. I would try my best to do things which I believe I am not-bad (if not good) at. I would continue to keep a hawkish eye on developments linked to stable, solid companies that form the core and satellite of my portfolio.

And since I am busy with my personal life, I would continue funding my SIPs as they having been going on for last few years. I would also continue accumulating funds in RDs which would help me make bulk purchases of stocks when markets crash in near (or far) future.

So, for the time being, that’s the update from Stable Investor’s side. Regular posts with more financial content would commence soon. Till then, have a safe, happy and a noiseless Diwali.

And do share details of what you plan doing when markets are making new highs.