Before we think about future, we should know what economic experts said before Lehman bothers collapse and share market crash in 2008. I don’t know what will happen in 2009 but I completely fed up with the people’s underestimation of current economic slow down. Only time will tell whether I am underestimating /overestimating the economic crisis. Obama's stimulus policy is the last hope for global stock markets. Valuations are good but economic environment is looking much worse to justify those valuations.
NASDAQ crashed to below 1,500 levels and Dow Jones touched late November levels due to drastic fall in retail sales in USA. Simultaneously, more bad news came from Japan, Germany and Canada. India's Pantaloon Retail announced fall in sales for the first time in 4 years. Nortel bankruptcy news coupled with Citi Bank's narrow escape from bankruptcy sent tremors across the global markets. No fall in the lending of banks but drastic fall in consumption means people want to sit on cash in these troubled times.
Chart courtesy: Bloomberg.
10 Worst economic predictions in 2008: (Source: BusinessWeek)
1. “A powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep faith” – Richard Band when Dow Jones at 12,300 in March, 2008.
2. “AIG” could have huge gains in the second quarter” – Bijan Moazami in May, 2008.
3. “Freddie Mac and Fannie Mae are fundamentally sound. I think they are in good shape going forward.” – Barney Frank in July, 2008.
4. “I am not economist, but I do believe that we’re growing” – US President Bush in July, 2008.
5. “ I think Bob Steel is the one guy I trust to turn this bank around, which is why I have told you on weakness to buy Wachovia” – Jim Cramer, CNBC Commentator in September.
6. “Existing home sales to trend up in 2008” – National Association of Realtors. These brokers same similar things all over the world.
7. “I think you will see $150 per barrel by the end of 2008” – Boone Pickens.
8. “There is growing evidence that parts of debt markets are coming back to life” – Peter Coy.
9. “In Today’s regulatory environment, it is impossible to violate rules” – Bernard Madoff. Unbelievable!
10. “I don’t expect any serious failures of large investment banks” – Ben Bernanke, US Federal Reserve Chairman. Do we need more quotes?
What happened after that?
Dow Jones collapsed to 7,500 and AIG along with Freddie Mae and Fannie Mac were saved by American Government from bankruptcy. Republican Party miserably lost in American elections.
Why am I writing about all these predictions?
Many investors blindly believe in the predictions by analysts or experts like Rakesh Jhunjhunwala and statements by PM and FM. They take their investment decisions just basing on their advice without doing proper research on the Company and economy.
Investors overreacted in October due to panic and Sensex crashed to 7,800 levels and then recovered to 10,300 by the end of December. Meanwhile, economy deteriorated further in November-December and hopes of mid-2009 recovery were permanently evaporated. Sensex moved in exactly opposite direction to economy (Just as it did in November-December, 2007 after US Subprime crisis). Will it crash once again?
7,800 levels are unreasonable levels when you compare with economic situation in October, 2008 but they will be reasonable levels for BSE Sensex in February, 2009 and those levels may become expensive ones if you think in the context of forward valuations in February, 2009.
Do you know?
40% of financial analysts are removed from jobs in the last 1 year. It is not a surprising news if you go by their analysis and comments in the research reports. Most of these analysts give recommendations in the short term context. They don’t believe in their experience and gut feeling. They don’t see bigger picture on economic happenings and what will happen after 3-4 months.
Final advice: If you are a serious investor to make big money in share markets, try to see bigger picture. Never invest in any stock just basing on someone’s recommendation. Try to develop broad knowledge on economy and Companies and work hard on research about the company, sector and economy and then take the final decision. Don’t change your decisions by short term market moves. Don't hesitate to exit when you take a bad investment decision.
How to enhance value and earnings?
Just see how Rakesh Jhunjhunwala and mutual fund managers destroyed their portfolios by blindly following long term India story. They miserably failed to spot the changing trends even in September. No doubt they will make money over long term. Is it necessary to lose 60% of portfolio value by sticking to a false perception (long term India story)?
I don’t recommend frequent buying/selling but when there is a serious economic downturn; one should learn to sit on cash. Entry at reasonable price into a stock is good but exit at ideal time is also important. It is difficult to accept our failures but necessary to restrict losses. Just see how Hutch and Ranbaxy promoters milked money by exiting at an ideal time. Just see how Nirmal Kotecha maximised his returns by exiting from SEL Manufacturing at high price. Sentiments will not work in Stock markets. Only ruthless practical investors will succeed in stock investments. We have to see how Ranbaxy promoters will play with their cash in this cashless market. They have once in a lifetime opportunity.
Q3 Results: GTL Infra, Supreme Industries and SBI Home Finance announced losses in this quarter while NIIT Tech announced disappointing results.
Courtesy: N. Venkatakrishna, stockmarketguide.in
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