The most common dialogue in the investing community today is Market all time high, so it is not a good time to Invest!
Market all time high is a relative term. If you look at standalone yes, it is all time high. But, that is not the way to look at it, if you really want to make money out of the market.
Sensex closed last Friday as 29,706. Same Sensex closed at 29,681 on 29th January 2015. In other words, what rate available today were 24 months before price. Is it ahigh or bargain? How you look at it, makes all the difference.
Similarly, Sensex first touched all time high on 8th January 2008- 20,873, from that we are nearly 111 months now and today it is trading at 29,706. In terms of absolute return to be precise, it is 42.32%. Annualized return or CAGR return is mere 3.82%.
Enlighten me, is there any commodity in India for the last 9 years that has grown less than 4%, I keep searching and could not find anything!!!
Investor is planning to invest and stay invested for 3 plus years. To me it is one of the biggest bargains, even if somebody reads all time high at the surface level.
In Chennai, property is not coming down, but sales are also not happening. One year before sales were happening and no one expressed that whatever they are buying at that moment is all time high.
Our salary is all time high and all the basic commodities are all time high, but this will never come to our mind. But, we as an investor always have a double standard when it comes to investing. We are basically emotional to certain investments so we have blind faith on few investments and irrespective of the good returns one can get it in mutual fund, investor always feel that this is not permanent!!! What happened in 2008, if that happens, I will lose all the money?
Before, we comment on 2008 or comparing 2008 one should understand how the market moved linearly between 2003 and 2008. We are not in the situation at all, so comparing 2008 is more of excuse than reality, I would say.
One should really worry when the market moved from 3000 to 21000 levels in 5 years, but investors are in euphoria status at that time. Whereas from 21,000 to 30,000 after 9 years is nothing, but many feel that market is high and I will wait for the market to correct.
Business is forever, no business started with expiry date, similarly mutual fund investments forever and we can take as and when we need money not booking profit and protecting those gain. That is the reason, most of the mutual funds are open ended.
I reiterate the same example, if the market compounded 16.2% per annum and if someone invested 1 lakh rupee, and the investor is taking 16,200 every year and after 20 years their withdrawal amount is 3,24,000 and the principal amount is 1 lakh so total value is 4,24,000.
Moreover this 16,200 will find a way for some spending. If they have not touched, then the value at the end of 20th year is whopping 20 Lakhs at the same 16.2%.
I love this quote read somewhere, Amateur book profits and professional cut losses.
Please do not listen or say to anyone that the market is high, henceforth market will be only high. It’s open secret! Whether we took part in the journey to our capacity is the question to be asked.
I hope you are all smart people to understand this to take part the exciting investment journey for the next one decade.
by B. Padmanaban, Financial Planner, www.fortuneplanners.com