This is a question I keep asking myself these days after seeing the market tumble down. I keep telling my friends that “Stock Market is crashing” and they reply back to me that “Tell me something new” or “You keep giving me bad news” or “How long is it going to happen this way”.
These are just my guesses how things might go in the near future. I am not an expert in economics or stock market. Just an ordinary guy with a special interest in economics and stock market, so you can very well assume that I can always go wrong :). After this disclaimer, I hope to say things that are there in my mind without any fear.
If I had solid cash in my account which I wanted to invest, I probably won’t be investing at this time instead I would prefer to stash the cash in a Bank Fixed Deposit without any worry. Why am I saying this is because, now the situation is very clear that the G20 nations will do anything to ensure that the banking system does not get affected by any way. If they can provide $302 billion guarantee to Citi Bank they can do anything for other banks. My take would be it is better to keep the money now in the bank.
You don’t prefer to do that and you have a hunger for risks and you assume that things will brighten up in near future and you want to buy stocks which one to go for? Now that is a difficult question to answer and you know that very well. None of us or the analyst or for that matter anyone knows the future and predicts precisely that this will happen. The probability of the analyst predicting about a stock is 0%. You might argue with me about this and as far as I have noticed not even a single soul can predict the future precisely.
Last week I was following the stock market which I do religiously at times. I check rediff.com for stock market analysis. There is a small box that shows up with details from many analysts. All that the analyst says is either to buy or sell or hold a particular stock. They don’t give updates on all the stocks but on very few selected ones. This is my observation on one of the crashing day. From one of the stock broking house, an analyst said to buy a particular company shares and hold it for a term of 6 months to get a gain of 10% around 10.45 am and from the same house another analyst said to sell any shares of the same company as he believed that the value of the shares might go down further (I am sure that you might be thinking that I am cooking up this story but I am not!! I had shared this with one of my colleague and if he reads this piece of information he will agree with me and he might share the details, if he wishes). This clearly indicates how sure the analysts are. Everyone predicts something or the other and the same thing will happen.
To make it clear, let us assume that today I will say buy “ABC” company shares at Rs. 15 and sell them when it touches Rs. 20. You assume that I have an audience of 1 Lakh people and since I said something like this, people will start buying “ABC” shares like crazy and it may rally up to Rs. 25 and since I said to sell at Rs. 20 people might think that it is better to sell and realize the profit and start selling it and the price may fall back to Rs. 15 in the process. This is what happens largely in the stock market. You agree with me or not, things are just like this. An average investor does not think about the value of the company nor does an in-depth analysis about the company before investing. He just invests because he has money. I am a living example for that kind of investor; I am not ashamed to call myself an average investor. I did that and now I have learnt from my mistakes.
So for the investors out there, my call would be don’t just go by numbers if you plan to invest. Do a thorough analysis of the company. Don’t think about short term. My assumption is things to get back to normal state it will take at least 6 months or so. If you invest now at least think of a year as horizon and invest and make sure you don’t burn your fingers investing.
Good luck.
Engineer's Finance 