In all the gloom and doom surrounding us, the only good news is that most of the investors in stock market have hit the panic button. Investors are so scared and restless that they are exiting the stocks without any regards for fundamentals of the company, valuations, dividend yield on offer, etc.
If one looks at the screen, it would appear as if 90% of the listed companies in India will be out of business and there’s no future for them. As they call it, there’s blood on the street.
Right now it’s a panic stricken market. Else how will you explain the fact that in the last 1 month investors have started selling even the good stocks at throw away prices? How often does one get debt free cash rich companies with strong operating performance at a dividend yield of 6-7%?
Well, it’s actually good that market returns are not constant (like FD) and there are both good and bad cycles, else it will be impossible to get extraordinary returns such as one gets by investing during bad times and exiting during times of irrational exuberance and optimism.
It’s not a rocket science and probably everyone is aware that market’s been through these kinds of bad cycles in the past, eventually followed by periods of good returns (2012 was good after a bad 2011, 2009 and 2010 were good after 2008); however what matters is that you should have a calm head over your shoulders.
Yes, in situations like these it is easy to exit and avoid short term pain of seeing your stock going down; however 3-4 years down the line when the stocks will be up and the sentiments and news flow will be good, you would think how foolish it was to sell a stock that quoting at Rs 50 and was giving out Rs 4/- per share dividend.
Such is the irony that those who are selling companies worth Rs 100 at Rs 40-50 in the name of uncertainty, bad news flow, etc will be the ones buying the same companies worth Rs 200 at Rs 240-250 in the name of certainty, optimism, good news flow etc.
As they say it, you either get good news flow or good stock prices; you don’t get them both at the same time.
We are no experts in timing the market, nor are we good at predicting macro-economic events; well actually no one is, it’s just that some pose as experts because there’s demand in the market. We believe in times like these it’s important to keep adding to your portfolio in a very gradual manner (even though next week the same good stock might be available 10% lower than your purchase price) as no one has ever been able to predict the market highs and lows.
Further, what is important is to stick to companies with good management and strong balance sheets because sooner or later there will be a turnaround and the companies that have strong balance sheets, good cash flows are likely to emerge even stronger as they will eat into the market share of weaker players.