BUY TODAY, SELL TOMORROW- MAKE HASTE It is that time of the year when everyone will suggest revisiting your portfolio and investment themes. However, I do not believe in this ritual that is marked by a change in the calendar. Why should it matter so long as things are going as planned? And if things are not going right, why should I wait for the year to get over or another one to begin? Investment strategies should be not change unless there is something wrong with what one is doing. Investment strategies can get aggressive (buying riskier assets like equities) or get passive (keeping money safe against erosion of nominal principal) depending on circumstances and events. If someone tells me to ‘rebalance’ simply because it is that time when one throws away an old calendar and gets a new one, it does not make sense to me.
When one starts off on the journey to ‘invest’, I am sure that there is some inkling of risk and return. And I also maintain that ‘investment’ is the second stage in financial accumulation. The first stage is ‘savings’. The ‘savings’ allocation is free of risk and does not warrant any change unless there are dramatic shifts in inflation or interest rates. In this we will have several things like our provident fund and or PPF, bonds, bank deposits etc. We are simply building our first line of defence. We have kept for ourselves a fixed goal of reaching a certain corpus by a date. So this does not get disturbed.
After having crossed that, I am looking at real estate, equities etc. These are tactical allocations and whilst it is great to keep buying these as much as possible till as long as possible, economic and political events dictate higher or lower level of buying of these assets. Typically, one would have some portion of money that is waiting to find the right asset.
Buying assets for keeps necessarily means having to wait for a ‘right’ price. There is no formula for this as far as real estate is concerned. However, for equities, one can define and work out prices at which we can buy and prices at which one should sell. Neither prices last forever nor do markets generally move in a narrow range. Thus, it would be ideal if I could buy more when prices are low and less when prices are high. Alas, none of us are expert enough to forecast the market trends accurately. I generally advocate people to buy a select bunch of stocks at consistent intervals and keep accumulating them for ten to twenty years.
There are those of us who keep dabbling in equities without any specific thought. It is more of a ‘herd’ mentality. Many of us got enamoured of equities in 2008 and then swore off it in 2009. And finally exited in 2013 when the index looked very similar, without bothering about value or price.
I am sure history repeats itself. Very soon, we will see another build up in our markets as the general elections come closer. One likely scenario that is being painted by everyone is that we could see a government headed by Modi. Markets will make him out to be the panacea for all ills and everything in the stock markets will seem to get better once he takes charge. So, logically once should be expecting a new surge in the markets till the elections are over.
By that time, a lot of expectations would have been built in to the market. Next, the results will come. Results may be as per expectations. Now the markets will not run up much more. Markets will have to wait some time to see expectations being met and nothing can positively surprise. The risk of disappointment is higher. Let us call this Scenario A. There other outcome is that UPA could cobble together a third term. In which case, all the positive build up would lose steam and the markets would correct sharply and then get driven by what the UPA will do. As of now, if UPA 3 happens, the markets would be greatly disappointed. Let us call this Scenario B.
Scenario C would be a third front- Ugly from the stock market perspective and cause a huge fall.
So, in short, whatever be the scenario, it makes sense to sell off stocks on the day votes are getting counted or just a day before the polls, to cater to exit poll opinions.
This is simply a ‘trading’ idea. Markets are not predictable, but what I have outlined is my take on the probabilities. January 1st , 2014