| Learn the value lessons, fast |
For a while, it seemed like a breeze. All you had to do was buy and
buy and let a rising tide lift your boat. Investor cockiness was so extraordinary that at
one point even the initial public offerings of garage-based Internet start-ups seemed to
be no- lose bets. But today the market is in the doldrums-the sentiment is week, the
yesteryears stars are today’s dog’s-the ICE has melted and how-and in short the
investor’s are sweating. But have we learnt anything from last year’s upswing
and this year’s downswing.
The first thing any investor ought to have learnt is that “Buy and hold isn't a sure
bet”- Consider once- unchippable blue chips like ACC, GACL, HLL, etc-were all out of
favor and quoting at their lows. Even the greatest companies can hit a growth snag,
especially cyclicals which move with the ups and downs of the economy as well as their own
industry cycles. Consider the flip side, the techie fever or fervour rather sent Infosys,
NIIT, Satayam etc, to dizzying heights. But as the market lost the techie appetite, they
came spiraling down. So again Buy and hold doesn't mean buy and ignore. Investor’s
who were alert and on the ball tracking their investments had a quicker chance of exiting
the market once the first signs of the fall started. Also in case of newer industries, the
time horizon for the industry life cycle has shortened. For instance a company like NIIT
which was on the top of the heap last year as far as computer education went, today has
little different to offer from its competitors.
Another important lesson of last year’s rise is for investor’s to start re
regarding risk in terms of the returns they are expecting. Last year everyone wanted to be
on the infotech bandwagon, the risk of being concentrated in a handful of scrips of that
industry was overlooked by most. No one read the first trickle of articles on the NASDAQ
which warned of the impending doom. It was sheer herd mentality. The pressure to jump in
often overwhelmed all notions of look-before-you-leap investing. You were a sucker if you
didn't get in on Global Tele at Rs 2200 or Pentamedia at Rs 900. Even as the market
started to stumble people bought into the dips because it had always worked in the bubbly
atmosphere of the past. Then, suddenly, it didn't work and people were left high and dry
with high entry prices. Also people forgot that scrip price appreciation is not the only
kind of return in the market. Good steady dividends and bonuses etc. were all sacrificed
in favour of the rise in prices.
Another lesson is ofcourse-the power of diversification. If you don't know what's going to
happen in the market, then diversify. Sound advice, but also boring stuff to many people
in the 1990s, when one chunk of the portfolio could double in months or sometimes weeks
and the rest would just plod along or even shrink in value. By last spring all that cash
being stuffed into the unstoppable tech sector pushed the Sensex's value to an incredible
high. We all know what happened next. The leading stock groups become laggards, the
laggards become leaders and the twain shall always meet. Tech stocks made many people
forget that other asset classes exist. Those who had bet too much on tech missed out on a
resurgence among other types of investments in 2000.
So, as an investor even if you lost money in the market in the last 12 months if you have
learnt some of the lessons, like doing a bit of groundwork yourself, keeping track of your
scrips, diversifying your investments, and finally sacrificing herd mentality for the more
sober and sedate research based investment decisions, then you have still gained
something.
Aru Srivastava
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