I have been watching market for while and most of the companies share prices are skyrocketing at present time. I can understand most its mostly because of quarterly results but do you think its riskier for newbie to enter the market at current scenario ?
Your question will always be relevant at any point in time. There is something somewhere wrong at all times and the market/stocks climb the wall of worry. Start small, loose some money, learn your lessons and start allocating more as you get some confidence.
There are two kinds of risks. You seem to be worried about one. Then there is also the risk of losing out, also known as opportunity cost. You need to decide which is of more importance to you, what are the probabilities and what is your capacity to suffer from both the risks… Think about that and then take the decision.
There is ALWAYS a possibility of loss when you buy stocks. If you speculate based on tips and inadequate study those losses are likely to be permanent. If you invest in good companies based on your own study and conviction, those losses are likely to be temporary.
My view is most quality companies discussed on Valuepickr are currently fairly/over valued at current market prices. Hence, you must do proper due diligence and be fairly confident in their growth stories before investing.
The battle between risk of capital loss and opportunity cost will always be present at any stage of the market. However, it is only your own personality traits that can help you make the decision of investing or not at current levels. Most people aren’t able to stomach losses (>20-25%) immediately after a fresh allocation, but those that do and have invested in the right businesses, end up making the big money.
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
― Warren Buffett
The decision to enter now depends on
A) whether you are planning to invest as a lump sum or SIP,
B) time horizon.
Prepare and track a watch list of stocks.
If it’s a lump sum it makes sense at this stage to remain in cash to the tune of 25 to 35% so that you can take advantage of broadbased as well as stock specific corrections which occurs at least a couple of times in a year.
If your SIPing start investing and allocate based on your watchlist and add more to companies based on their price behaviour each month.
Time horizon should be >> 3 - 5 years.
Hope this helps
Thanks for that. I knew 3 year returns when pe is higher than 22ttm was negative… That’s a deep cut though.
Bu the numbers are startling… Doesn’t it get significantly better at 5 year rolling returns?
There is a blog which lists out 5 and 7 year rolling returns at pe band of 20-24 and above that as well.
It is quite below average at 7 and 9 percent at these higher bands.
Here’s some words of wisdom from Peter Lynch In One Up on Wall Street.
The market ought to be irrelevant. If I could convince you of this one thing, I’d
feel this book had done its job. And if you don’t believe me, believe Warren Buffett.
“As far as I’m concerned,” Bufftt has written, “the stock market doesn’t exist. It is
there only as a reference to see if anybody is offring to do anything foolish.”
One thing I have observed over the years is to ignore market levels and be company specific. And that has helped a lot.
In all kinds of markets there will always be opportunities available for the prepared and the patient.
Key remains to be prepared first and patient next.
See nifty levels 6 months back-
It was probably higher than it currently is. Then see how stocks like can fin, ambika, ajanta pharma, alembic, torrent, shasun etc have grown from their prices 6 months back.
So, as the experienced guys in VP say, there are opportunities at all times(or at most times).
Plus in a low inflation, low interest rate scenario, the earnings yield on fixed deposits will be less. P/E = inverse of earnings yield. Earnings yield of FDs and stocks will be compared. So the market naturally trade at slightly higher p/e than they would in a high interest rate scenario.
I agree wholeheartedly. The sense I get is when we are only investing In 10 to 15 companies at the most, index levels really don’t matter much.
Therefore, it would be prudent to prepare a watchlist of stocks that you would want to invest in and then patiently track the individual companies to invest. Pull the trigger when watchlist stocks come into comfortable valuation zones.
Averaging up as the company performance continues and making fresh allocations when the stock corrects 15 to 20 percent after making a fresh high is something I picked up from following valuepickr and hitesh bhai and that has helped quite a bit.
I hate saying “Told you so”. But looks like correction happening today is justified. More the price drop , merrier it should be for Value Investors. Happy Investing to everyone !!
Dow Jones -3.2 %
Sensex -6 %
Dow Jones -5% (starting to recover now)
Sensex - close your eyes, you may not want to watch this
Reviving this old thread due to 3 triggers.
- MF industry assets hit fresh high of Rs 15.6 trillion in August
NIFTY PE as of 07 Sep 2016 - 24.45
Tweets from from some wise people
(Note: it doesn’t mean you should not buy attractive individual stories)
NIFTY At 6500: “Things are looking uncertain. I will invest after things look a bit better.”
NIFTY At 7500: “Man, That was a quick 15% rally. I will wait for the next quick correction.
NIFTY At 8500: "Markets look overvalued now. I will wait for 7500.”
NIFTY At 9000: “Ah! The market is making new highs. I will buy at 8000."
NIFTY At 7500: “Things are looking uncertain. I will invest after things look a bit better.”
And the cycle continues…
Thanks Hitesh. What is the significance of Market PE if it is irrelevant to individual investors. Does it have any significance for individual investor or it is just an indication for institutional investors ? I am looking to absorb as much as possible from market masters like you.