Markets go up the stairs and down the elevator – Warren Buffett
The markets are in a correction mode these days and the cut in stock prices has been sharp when compared to 15% cut in the Sensex from 20,500 at the start of year to 17500 today.
Reasons for the decline:
- The valuations were rich. PE ratio for Nifty as on 1st Jan, 2011 was 24.50 and has now corrected to 20. At 17-18 times PE multiples, the markets will become very attractive.
- Unearthing of scams – shakeup in investor confidence
- Rising Interest rates
- High Inflation
- What has changed?
- Nothing too much in terms of longer term picture. We believe that India is an excellent long term growth story and the investors will do well by investing in growing corporates.
- In the short/medium term, if one analyses the Q3 numbers, many companies have seen lower margins due to inflationary pressures. The margins may remain under pressure for sometime but over a longer period, good companies should be able to pass on costs.
Interest rates have a inverse relationship with the valuations of markets hence investors should seek more margin of safety while investing.
What to do?
Market fall is always faster. Like Warren Buffett says – ” Markets go up the stairs and down the elevator”. So stay calm and take WB’s other advice – “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it”.
As most of the stocks are in correction mode and in many stocks fall is of more or less equal magnitude, investors have an opportunity to sell their weaker stocks to better ideas. Portfolio re-shuffling is a must in these times.
Plan your future strategy and make a plan to invest money at fresh intervals on every fall (something like an SIP).
We have updated the “performance and review sheet” recently.