Best time to buy is NOW---I

“Far more money is lost while waiting for a reaction, rather than in the reaction itself.”

Retail investors are comfortable investing when there is peace prosperity all round and then complain about low returns. However, it has been time and again proved that investments made during the bad times are the best investments.

Warren buffet is not what he is today because he invested in tranquil times. He deploys his cash when markets are bleeding.

Indian equity market has been in existence only for a short time now as compared to that of the USA.

We believe that if we are able to prove that good investments are those that are made in bad times in context of United States, then it might as well hold true for the Indian equity markets.

2014 has been unnerving. Every day there’s a worrisome headline coming out of Russia, Iraq, and Libya, Gaza Strip or any other of the world’s hottest geopolitical hotspots.

So naturally the worried investors will ask: - Kya kare? FD kar le?

Warren Buffet would probably recommend taking a step back, reflecting on history and then looking to the future.

A peep into the past: -

• During the great depression, the Dow Jones hit its low of 41 on 8^th. July, 1932. Economic conditions though kept deteriorating until Roosevelt took office in March 1933. By that time market had already gained 30%.
• During the early days of World War II, when things were not good for United States, market hit bottom in April 1942—well before fortunes of Allied forces turned favourable.
• Again the best time to buy stocks in early 1980s was when inflation was high and the economy was down.

In other words bad news is investors’ friend. It lets you buy a slice of the economy’s future at a marked down price.

Over the long term, the stock market news will be good. In the 20th.century, United States endured two world wars, faced the great depression, expensive military conflicts, dozen or so recessions, and financial panics, oil shocks, a flu epidemic. Yet the Dow rose from 66 to 11497(between years 1932 to 2000)

None of the above catastrophic events made a slightest dent in Ben Graham’s investment principles. Political and economic forecasts, business channels, can prove an expensive distraction for investors.

Could Buffet have clocked an annual compounded growth of 19.7% in its book value since 1962 (compared to 9.8% of S&P 500 with dividends) had he deferred or altered deployment of investments in capital market?  Warren Buffet has gone on record saying that “we have usually made our best purchases when apprehensions about some macro event were at its peak. Fear is the friend of the fundamentalist.”

Essentially Buffet is saying 2 things:-

1.       Market will weather crises no matter how bad they are.

2.       Stop worrying about the direction of the markets. Irrespective of the direction, prices will likely be higher for patient investor.