Today, instead of focusing on a stock market or an industry, we’ll spend some time for a little reflection. So, let’s dive in.
Let us try and keep it concise. We will not be trying to tag the stock market increasing with excitement or whether or not there’s a surplus at the top. No one amongst us can tell that with undoubted confidence. The optimists normally addressed as the bulls maintain their controversial discussions for why the markets will go on rising continuously. And the bears, who are referred to as the pessimists will indicate instances from the past and criticise everyone for not paying attention to those lessons.
We can clearly monitor via the looking glass of both, a bull and a bear about the crack in the markets. Let us imagine and furnish voices to both their thinking for a moment.
I told you so!!! The beginning of the breakdown is with the 3.2% fall in the Sensex on Monday. Since the month of April 2021, the foreign investors have been selling and it’s simply a matter of time before all the beginners in the market run for the hills! What is your thinking about the markets that have run up so far? It has been that way exclusively because the major banks are putting in the money. Seemingly, they are planning to turn the money tap off, just wait and witness the markets fall.
The Sensex has descended from 61,765 to 55,822 in two months, so? That is merely a drop of 9.6%. In actuality, I will be additionally anxious if these modifications don’t happen. That’s the way in which the bull market maintains itself as profitable. And if we take a look at the real sales and profits of corporations and firms. The outcome is more effective and substantial now than it was a year before the outbreak of the pandemic. Onward and forward is where the bull market keeps going.
Just picture yourself standing at the border regarding the “bubble”, you would have approved of both of them – the bear as well as the bull because both of them have reasonable points. The markets have definitely amplified this year due to excess money. But corporations and firms are also gaining proper earnings. And this transmits us again to the query, ‘Is it a “bubble”?’
Regrettably, these sorts of assumptions do not benefit anyone. Rather, we could glance at a couple of things that will hopefully enable us to make more profitable investment decisions in the coming year. But let me remind you, both ideas are borrowed from a couple of experts who have spent numerous years trying to comprehend and understand the oddity of the stock market.
Controlling the market
One of the expert questions the thought of controlling the market.
Well, now answer this – Is it possible for you to control or oversee the way in which markets will move tomorrow or the day after that or the following days? If your answer is yes, there is definitely something questionable and we would say you are controlling the market! But until and unless you are committed to some atrocious practice like that, we cannot really foretell which way the market’s stand will swing. One of the most recurring statements in the market is that time in the market is more important than timing the market.
An analysis performed by one of the world-renowned companies provides us with an accurate example of the way all of this works. Let’s say you invested at the start of the year 2000 in the US S&P 500 and you stayed invested in it for 20 years or over 5000 days, you would have made an annual return of 6%. Whereas let’s express that you decided to be wise and attempted to time the markets and you ignored just ten of the best days during these five thousand days. Then, your annual returns would have dropped to a measly 2%. Quite astounding, isn’t it? An exercise that goes in vain is trying to prophesy the market activities or when the bubble will pop, it is of no use.
The expert also highlights the fact that your behaviour and anticipations are under your control, and so is the amount of risk you wish to take and the time you have in hand. Stock market prices and future returns are not under your control and thus you must leave them at what they do best, that is, fluctuate.
The second expert talks about Emotions.
When the Sensex transited the 61,000 mark, the newspaper pieces and writings were only concentrating on Sensex at 70,000 and even more advanced levels a few months back. You know some of its presentation to be unimaginable, but you have made money in the past few months and you start getting greedy. So, you pull out money from your bank account and you go all in because you only live once, right?
But the actuality is that you are being unpleasant and very greedy just like the pigs. Why so, you ask?
The fact is that it all comes from an aged Wall Street saying: “Bulls make money, bears make money, but the pigs get slaughtered.” It has some narrative to it as pigs were typically butchered for meat in the winter months in the US and Europe. The chilliness kept the meat fresh for a more prolonged duration. In the process, they are made to be plumped up by feeding a lot of rich fodder. The pigs will never understand that they’re being fattened up for butchering them as for them they are blinded by greed. So, in reality, greed is what destroys them and that may eliminate you also.
Have you thought about what will happen if the next wave of Covid-19 upsets the economy and the markets crash? You will for sure be terrified and fearful as you have put all your money in the stock market because of greed and that is a sure shot reason for you to lose money.
Diversification, at the end of it all, comes down to this one thing. If you desire to attain a peaceful sleep at night, you need to distribute your money into safe investments too. And for each and every one of us, a good night’s sleep is extremely necessary.
We should be a little more mindful of what we can control instead of trying to envision things for the year 2022. What we ought to control are our behaviour and emotions.