Tuesday, May 5, 2009

Green shoots of recovery

The world markets have shown resilience in the last few weeks and while DOW is up by 29% since the black Monday on the 9th March, some other markets have gone up by over 50%.

It is believed that markets discount the future roughly 12 - 18 months in advance and if history is anything to go by, recessions do not last a lifetime. And recessions of this magnitude perhaps happen no more than once in a lifetime.

We should consider ourselves lucky that we have seen so much unfold in front of our eyes while we were trying to learn similar concepts in the classroom.

This is also a great opportunity to start investing. Some of us who have not had a taste of stock markets yet could think of making some informed investments decisions. Stock valuations are still at life time lows and there is some cherry picking to be done out there.

Warren Buffet made the majority of his investments in early 70’s during the oil crisis and he invests when everyone else is selling and is fearful. Most of us miss the bus because we follow the herd.

This opportunity to invest in stock markets might never ever come back in our lifetime!!

1 comment:

  1. I do agree with you Manu. Even the Asian markets are seeing a sign of recovery.

    Infact the Bombay Stock Exchange benchmark SENSEX on Monday (4th May 2009) crossed the 12,000 points level for the first time in seven months, on emergence of buying in blue chip stocks led by metal and banking segments.

    Market players said that trading sentiment received a boost from reports of a positive Chinese purchasing index, which raised expectations that the global economy is back on track.

    The upsurge was also supported by reports that overseas investors bought USD 1.3 billion in Indian equities in April, the most in 18 months.

    And yes, its the right time to invest in equity.

    I came across this chart which beautifully showcases some recent crashes with their relative recovery time and concludes that equities is the best asset class, which enjoys a very high appreciation.

    Market Crashes

    Years: Span Top - Bottom % Decline

    1. Feb - 92 13 months Top-4547 57%
    Apr - 93 Bottom-1980

    2. Sep - 94 16 months Top - 4643 40%
    Jan - 96 Bottom - 2820

    3. Sep - 97 14 months Top - 4605 41%
    Nov - 98 Bottom - 2741

    4. Feb - 2000 20 months Top - 6150 58%
    Sept - 2001 Bottom - 2595


    Average of these is a decline of 49% in 16 months. Compare this with the recent market crash:

    5. Jan - 2008 10 months Top - 21207 64%
    Oct - 2008 Bottom - 7697

    Market Recovery:

    Year: Span Bottom-Top % Appreciation

    1. Apr - 93 17 months Bottom - 1980 135%
    Sep - 94 Top - 4643

    2. Jan - 96 20 months Bottom - 2820 64%
    Sep - 97 Top - 4605

    3. Nov - 98 15 months Bottom - 2741 125%
    Feb - 2000 Top - 6150

    Average appreciation of 108% in 17 months.

    Now considering the enormity of this market crash we can safely assume that the time frame of recovery would be a little long. Inspite of that which asset class is going to give you this kind of appreciation? So as every bed-time story has a moral, the moral of this story would be invest regularly with specific goals in mind.

    ReplyDelete

Your comment isimmensely appreciated and will be published for a discussion - soonest. Thanks. manu