Typically I do very less articles on personal finance and I would like to argue today when is the best time to invest in the
stock markets. It is said that ” Good returns are seldom made on investments made in good times. Rather, good returns are typically made on investments made in adverse times”.
As in the long run markets have never sustained either overvalued or under valued rather they move closer to the fair values. So do companies are available below their fair value in this adverse time ? As adverse time investment made provides you more than average returns and vice versa.
I do not wanted to put the numbers for justifying the above, Just try to analyse the sensex that was in 3000 levels in 2003-04 and made the peak in 2007-08 of 21000 before it went down in 2008 and closed at 15000 levels.
Juts to put things in prospective majority of investments in equities are not done with a long-term view, despite the
fact that the best that equities have to offer is only over long periods. This is unfortunate, as by investing with a short-term view, investors are not benefiting from the compounding potential of equities.
Here again I do not want to explain the Power of compounding. I got the data from Bloomberg for the 5 Year compound Annual growth returns of Equities in India. (CAGR)
| Period (CY) | BSE Sensex |
| 1981 – 85 | 28.9% |
| 1986 – 90 | 14.7% |
| 1991 – 95 | 24.3% |
| 1996 – 2000 | 5.0% |
| 2001 – 05 | 18.8% |
| 2006 – Apr 2012 | 10.1% |
A small caveat here : Past performance may or may not be sustained in the future.
As I have posted in last week on exchange rate and democracy , the key challenges that the Indian economy is facing High Fiscal deficit, High Current account deficit and INR depreciating. As I again quote that the impact of the European crisis on the Indian economy should not be much and therefore on the equity markets over long periods should be much less than on other countries. This is so because India’s exports / investments in the stressed economies of Europe are miniscule.
From the above we can say that the economy is currently passing through a difficult phase. However, this is neither the first nor will it be the last time the economy is facing challenges.
I do not want to recommend any stocks here but a series of stocks available at threw away prices, just to give you an example when MCX IPO came people where getting crazy and wanted the stock it went on to touch all time low recently.
As I said above personal finance is not my forte but wanted to conclude Times such as present, when the markets are not doing well should actually be looked upon as a window of opportunity for savers to invest more into equities, so that when the good times come, there are meaningful investments in equities to reap the benefits from.
Good article.
The world of investment analysis can often get over complicated, and people become irrational and forget the basics.
I think the key is that the best long term investments are to buy quality companies at times when the whole market is going through a difficult patch, and hence there are opportunities to buy great companies at rock bottom prices. By great companies, I mean those that are growing, have a stable positive outlook,are well managed, well capitalised and have positive cash flows.
If they can be companies that dominate their market place, even better.
In the long term, if you time your investments into companies with these attributes at the right times, avoid the bubbles and the declining business sectors, then you should gain the maximum returns and limit risks.
So, I think in the middle of a crisis, if you have the nerve now is the time to buy, but only the right companies.
Thanks