To add to above discussion, I think, timing the market should not be taken as either being fully invested or in 100% cash.
In my opinion, a better way would be to decrease equity allocation when the market is trending historically higher and increase allocation when the reverse is true. There is of course some subjectivity involved in deciding when it is high or low enough and how much one should be in cash vs equity.
This way, one can build some defensive positions without missing out on the rally completely.
The (drawn) conclusion of engaging SIP, irrespective of highs-lows, would mean, that this liquidity based rally would continue to march higher. Maybe, it is different this time (Templeton must be turning in his grave); another generic reason for continued to investment to SIPs is,
There is euphoria in the IPO market; noticed that scripts are oversubscribed in high multiples, hence quite a few should have missed out on allotment, therefore, it would be logical to conclude, that if the listing is tepid, then the script should run up because of the unsatisfied demand lapping up the shares. However the contrary was seen, where the listing turned sharply negative and only just recovered by the EoD. My conclusion is that people are playing for listing gains. That was the phase 1 (about late 2006), of the beginning of the end, for 2008 crash.
SIP started on Jan 2008 (peak) for 12 month period ends in Dec 2008. Dec 2008 was not the peak.
I feel SIP returns of 11-12 % do not justify the “equity risk premium”. Therefore timing the market seems necessary to generate good returns which are worth the equity risk.
Please note the these scenarios are for NIFTY. Most of us will not be NIFTY investors. Here are the numbers for something like a HDFC Bank:
Scenario 1: 20.45%
Scenario 2: 34.64%
Scenario 3: 25.14%
Scenario 4: 26.70%
These returns definitely justify the “equity risk premium”!
See. We keep mentioning about HDFC etc… this is all discussion on what has happened already. Can someone put down 5 names that they will sell their house and invest in before close of market today and wait till 2028? Then that is real knowledge. Else, bhai, please use the market overheated and undervalued as a good marker of what has happened will happen again.
The whole point about my post was that SIP is a better way to invest for most investors.
I gave example of HDFC Bank ONLY because @Chandragupta raised the important point about “equity risk premium”.
In fact if you read my original post, it re-affirms that fact that you believe in. Fact that buying at low valuations is better than buying at higher one! (Duh?)
You are right. From what little I have seen, the most conversation on sip’s happens only when valuations cannot be justified. When they can be, that time people talk of cricket and movies
Buffet did not sell his house and invest in equity. He was knowledgeable enough that most of his bets would produce better returns than his house. Arguments of extreme scenarios does not help take pragmatic decisions.
But there are lot of people who continue to SIP all savings without selling their house they live in.
People are talking about them now when the markets are high.
But, even when market was down and valuations were in dumps and people were scared to put their money in the markets because of the fear that they will immediately start losing their principal from the next day, people were talking about SIPs.
In fact the primary reason I crunched the numbers was to have some data on SIP vs Bulk Investment.
I am ramping up my portfolio and this buying of mine eerily reminds me of my buying in 2007.
The thing i regret now is not buying in 2007 but failing to hold on to the quality ones during the crash.I had HUL,Maruti Suzuki in good chunk of my portfolio during 2008 crash and i had patience to wait till end of 2008 but my patience didnt hold on to reap the rewards later.
The key i believe here is not to accumulate Junk at these levels as there are many and could be big wealth destroyers.
Also from the euphoria perspective(This is purely from personal experience and might be totally wrong),i feel we have not reached at the levels of 2007.
I am just waiting to see the resilience of the current bull market at these levels based on time frame as if it could on above major resitance levels for a longer period,more money would come in.
Bhai @nav_1996 This is unfair, everytime people throw Buffett at me We are not Buffett na, so what he did, he did I am wondering everyday what should I do.
That bugger had a Coca Cola and decided he will buy their stock. Life ban gayi. What do I drink? That is the question.
So well said “arguments of extreme scenarios does not help take pragmatic decisions”. That is a very wise comment and I will try to remember it, it is something to remember for life.
SIP / index / passive investing yield is likely to go down compared to yesteryears. All value-agnostic investing will result in either low returns (at best) or financial ruin (at worst). Everyone would be well advised to read Howard Marks’ recent newsletter where he discusses perils of passive investing / ETFs.
The concept of indexation, or passive investing, grew gradually over the next four decades, until it accounted for 20% of equity mutual fund assets in 2014. Given the generally lagging performance of active managers over the last dozen or so years, as well as the creation of ETFs, or exchange-traded funds, which make transacting simpler, the shift from active to passive investing has accelerated. Today it’s a powerful movement that has expanded to cover 37% of equity fund assets. In the last ten years, $1.4 trillion has flowed into index mutual funds and ETFs (and $1.2 trillion out of actively managed mutual funds)…Remember, the wisdom of passive investing stems from the belief that the efforts of active investors cause assets to be fairly priced – that’s why there are no bargains to find. But what happens when the majority of equity investment comes to be managed passively?
BTW, demonetisation anniversary is just a week away. Many of us value investors jumped into the market in a big way after demonetisation. It would be interesting to see how many start pulling their money (along with tax-free profits) in the next 2 months. Most major market corrections (since 2000) have begun during first quarter of the calendar year. Danger zone ahead!
Lots of discussion here center around 2003-2007 bull market and 2008-2009 bear market because it’s embedded in our psyche. Every bull/bear market is unique in its own way. It is highly unlikely that this market will also follow the exact same trajectory.
History never repeats itself, but it rhymes. - Mark Twain.
Today analysts are divided into two class. One class says that nifty is overvalued even in this period of low earnings and is ripe for a good correction. On the other side there are perma bulls who are betting for the start of mother of all bull rallies. They say that earning cycle has hit the bottom and now there is only way to go up and this will bring down the PE level to acceptable levels. (I am more inclined to the second side, and 100 % invested that too in small caps, gradually planing to increase weigtage of large caps )
Here is one chart of nifty which is adjusted for inflation
What I meant to say is : the structure of every bull/bear cycle is different. You can just look at 2000 crash, 2008 crash and 2010 crash in the chart. In all those time, markets behaved differently. To look for the exact repetition this time would be a folly, I presume. Every time the reasons are different and market behaves accordingly.
You are one brave man… Interesting chart… Naive about technical analysis but I keep hearing that 10500 is a major break out point… Does your chart signify it too?
The approach I have taken is just take decision stock by stock because in long run there is no correlation between sensex and individual stock and the biggest correlation is earnings . I can say slowly I am running out of ideas because
1-2 years back , I could find many quality one at good valuations
Few months back , I could find few mediocre quality stock at value gap levels (like hotel, chemical etc)
Now whatever quality is available due to tailwinds , either they have gone up or I have exhausted my capital allocation limits ( read IT, Pharma)
So, net net, now I am in a position where I m more comfortable not looking for ideas for some time. Have a list of 150+ companies ,if finding something coming in value zone will attack. Some look close still far (read TVS srickara, amara raja etc)
Neverthless, do not shy away from nibbling quality ones when they correct ( read chola n edelweiss during PSU run up 2 weeks back and NESCO at 16 percent fibbonoci level correction 2 days back).
Key point is all these decisions have nothing to do with where Mr. Market is going. Take every decision on the merit of stock. I am doing some number crunching on overall market data. Will try to come up with something useful and share if it is really insightful. So, far the direction of Mr market is good for me as academic mental exercise but not much for decision making
I am wondering everyday what should I do.
