Sunday, May 25, 2014
Breaking News:- Equity investing is lot like marriage.
The male audience of amongst our readers and members of AIMS family—who are already married would be nodding their head right now, without really getting to know anything about the heading of this article. Marriage does that to a man. The male married species have developed a natural, sub-conscious habit because our wives tells us things that we don’t want to hear but which we pretend to be hearing.
For unmarried part of the group our advice is to nod and keep doing it. This is true for the world of investing. The moment you utter the words like stocks or market, a bunch of people will appear from nowhere to tell you where you should be investing. And the funny thing is that most of them won’t be fund distributors, stock brokers or even insurance agents.
Being thoroughly confused, your first reaction will be to run. However we will tell you to stay put and nod. But unlike the time when you are nodding in front of your wife, this is the time when you should keep your ears wide open. The more you hear, the more you know the more you learn, the more you can ignore.
Now coming back to why investing is quite like marriage, you realize how you keep reading about market making new highs daily, and yet our own investments are not doing that well? The thing about marriage is that even if things aren’t so good, you pretend that everything’s hunky dory. You keep saying to yourself “aal ij well” with you r hand on your heart. As long as you’ve a spouse who ‘s been good at heart, caring and fulfilling in the past, you’ll ride out of the rough patch. Or a bear phase will surely turn into a bull run sometimes in future.
The same goes with investing. You can’t quit when chips are down. In fact that’s the best time to stay invested—provided that the company or the fund you’ve invested in should be god at heart and caring and among other things should have a history of delivering well.
This is the simplest, but the most efficient way a layman can survive the gyrations of marriage and investing. The ride is scary, full of pitfalls. While the next 100 meters look tricky, but the long term benefits will far outweigh even the kilos that your spouse will eventually put on.
In short, hang in there.(Click to read:- Virtues of long term)
Sunday, May 18, 2014
In next few years Nifty will be Sensex.
Yes. We at AIMS do believe that in next few years nifty will be sensex. No, we are not talking about merger of Nifty & Sensex. We are simply stating that we believe that in next few years nifty will be at the same level where sensex is at today.
Post-election 2014, we believe that India is at the cusp of a paradigm shift. 2014 is going to be the watershed year as far as economic growth of the country is concerned.
Our only advice to our investors (particularly equity investors) is to buy right & sit tight. Equity is the only asset class which will create a second earning member in your family---working (for you) even when you do not.
We always tried to get retail investors to buy into equity irrespective of market levels. We have always believed that time in the market is more important than timing the market. It always works. A number of articles have been written by us around this timeless belief.
We have done some number crunching around the belief that Indian economy will continue to grow.
Following is our logic as to how nifty will be Sensex in a few years.
Current GDP is approximately 110 lac crores.
GDP growth rate conservatively 6% real
Add inflation say 7%. This gives nominal GDP growth of 13%.
GDP after 10 years will be 373 lac crores.
Last 10 years range of corporate profits/GDP ratio = 2.70% to 6%.
Corporate profits are approx. 4.40 lac crores. Long term average PE ratio is 16x.
Current market cap is 16*4.4=70 lac crores. (This is close to actual current market cap)
10 years hence, assuming corporate profit/GDP remains unchanged at 4%, corporate profits will reach a level of 15 lac crores.
If the PE ratio remains at the current long term average of 16x, then GDP will be 239 lac crores.
Today when the market cap is approx. 70 lac crores, Nifty is hovering around 6500. Now when the market cap is 239 la crores, Nifty will be………..22200 a compounded annual growth of 13%.
We accept that this journey of Nifty to 22200 is not going to be a linear ascent. There will be dips along the way. This where our belief “time in the market is more important than timing the market”.
We believe that it’s not market or the volatility that stops us from earning inflation adjusted returns from equity market.
It is our fear greed and panic that prevents us from being a happy satisfied investor.
1. Should you be invested in any asset class other than equity?
2. What should be one’s allocation to equity?
3. What is it NOW?