So we have come full circle once again. A high, then a sharp fall, lots of doomsday talk, a recovery which people think won’t hold, finally yet another new high, and how. The same pattern again. You would think that people would read the signs by now and accept what the screen is telling them. Yet, every fall evokes the same reaction: ‘It’s all over, this is the big one’. This is the biggest bull run we have had in our market and it must be the most doubted one.
But you shouldn’t make the same mistakes again and again. Two clear lessons leap out from the screen. One: Trust this bull run and try and remain invested in good stocks you have picked. Sure, churn if sectoral trends change but stay the course with the clear out-performers. Two: Buy the dips when they come. This market has given investors such great opportunities to get in at periodic intervals. It’s almost like it’s imploring investors to get in if they have missed out. Three: Meaningful dips in just over a year. May 2006, February-March 2007 and most recently, August 2007. At least 15-20 per cent correction in large-caps and 25-50 per cent cut in mid-caps, three times. You cannot ask for more.
Every time investors have bought these corrections they have been rewarded. Of course, the reasons for each fall have been different. Interest rates, sub-prime, Yen carry unwind, politics, but nothing has broken the back of this bull. It stumbles, gets back on its feet and runs stronger.
The worst was May 2006, but even that couldn’t kill the beast. Truly, this should be enough evidence that an enduring trend is in place. There will be more falls ahead, and the reason could be something else. Again, the thing to do then would be not to sulk and predict doom but be brave and buy the dip. The history of these falls should actually be the most convincing factor about this run, as we always manage to get back, higher and higher. It’s telling you something. As the rock star would say, Dips don’t lie.
(The writer is Executive Editor, CNBC-TV 18)