Are bad news bad?

Only bad news seems to be coming out from the markets. Greece default, high inflation, high interest rates hurting economic growth and corporate profits, Scams taking toll on governance, no big or small economic reforms by a government headed by the father of economic liberalization et all.

Pessimistic mood seems to be the order of the day. Investors are happier to put away their long term money in debt rather than equity. It’s just that equity investing for long term seems to be losing relevance. The feeling that you can invest tomorrow at lower price seems to be gaining momentum with every passing day.

What does all this mean for a person who is investing for long term? Dangerous frame of mind if such a person starts to develop such state of mind. It is during times like these in which the seeds of forthcoming rally are laid. You would have built up a sizeable chunk of equity holdings at low cost over a year or two of monthly SIP during such uninspiring markets.

For a serious investor who is investing with specific goals in mind 5-10 years away, such gloomy days can prove to be promising. You’ve just come across a period of time when you can quietly form a base of future fortune. In fact it is persistent equity investments during such period that you can look forward to getting a second earning member for your family.

We would like to re-iterate what we had pointed our in the 1^st. part of the article:-

• Don’t let market condition determine your asset allocation

It would be very tempting to divert your equity funds to high coupon fixed interest securities. We had said, “But abandoning equities now and moving to debt and cash would be a mistake.” In times like this it pays to keep the focus—on equities.

• You will be rewarded for staying cool

It's not easy to step back for perspective when you are gasping for air as your portfolio value plummets. But any sensible long-term investor will tell you that bear markets are setting up the next bull market. They are also keenly aware that bull markets don't run forever. So it is only natural that in a volatile market investors should expect some short-term losses in their portfolios. Even a great company's stock can get banged around in a tough market. But that does not make you a loser (though you may look like one). While the old "buy and hold" mantra may seem like cold comfort at times like this, rest assured that it has a better long-term record than market-timing.

• This too shall pass 

However bleak the scene appears, it is not here to stay forever. Bargain valuations are available only in such times. But the key is to understand whether such times are temporary or long lasting.

Till then “lagey raho”--stay put.