During the past four years we witnessed an unprecedented bull market. On every rise, many investors felt the market had peaked and sold their holdings. But stocks just kept moving up. If you were a rational person, you too would have sold and lost out. On the other hand, if you just went with the tide you would be sitting on a pile of stocks whose value has multiplied.
This brings us to the first question: Where do you see the stock markets going from here? Even with 30 years of experience in the stock markets I can’t answer this question accurately. There are no geniuses or experts in the markets. All were just lucky to be in the right place at the right time. They will vanish with the onset of a bear market.
The second question: What is driving the markets? I wish I had an answer. Everyone has just one word to explain this--liquidity: Too much money is chasing stocks. Of course, the markets are anticipating that this will go on forever and hence there is a mad rush to buy stocks. But remember the conventional wisdom; what goes up must come down and what goes down will come up. Imagine for a while. What happens when all the liquidity dries up? Whom will you sell your stocks to? Do some rational introspection and you will be able to take your decisions.
The third question: Which sectors look promising? The question is not which sector looks good or which stock holds promise. The question is which sectors or stocks are going to be the fancy of institutions, mutual funds and foreign institutional investors who will be pumping in liquidity and buying these stocks. The only discriminating factor against you is that you are buying with your own money and they are buying with other people's money. You will lose your money and they will lose other peoples money, which could be yours also.
The best way for investors is to analyse their ability to take risks in such a volatile market. Having done that one must have one’s own investment plan in place.
So we come to the last question: How long will this bull run last? Again, I do not have an answer but I go by one hardcore fact of our life. We all will die one day but we do not know when. So is the case with the markets.
(By Parag Parikh, Chairman, Parag Parikh Financial Advisory Services)
