Market Watch: The Investor’s Dilemma
The rulebook may be right but in times of turbulence, investors turn to their animal instincts and let their gut lead them, reports Udayan Mukherjee.Updated: Mar 14, 2008 23:29 IST
The rulebook says: Investors should not try to time the market; they should invest systematically; equities are the best performing asset class over a period of time. Ask any investor on the street today and you will find that their views are diametrically opposite to what the rulebook lays out. They want to wait for the bottom, they have no intention of buying into the market now and they truly believe cash is king at times like this. The rulebook may be right but in times of turbulence, investors turn to their animal instincts and let their gut lead them. Sometimes it works, sometimes it doesn't.
The problem is that most individual investors have scant regard for the "value has emerged, start buying" theme. Anyone who has been in the market for a certain number of years knows all too well, that this is the advice always doled out at the start of a bear market. And let's face it, that is the big fear in everyone's mind today. So stocks fall quite a lot, brokers say it is time to buy as valuations have corrected and then stocks fall even more and valuations get even cheaper. Till a day comes when everyone throws in the towel and says it's all over but by then it's too late. It is precisely these memories that prevent investors from buying today. They may be wrong in waiting but you at least have to understand where it's coming from. After all the rulebook also says that you must ensure that you don't lose money. At the end of the day, it's hard earned money for individual investors. They are scared and they don't want to risk their capital, period. No matter what analysts and brokers tell them, for the losses are always theirs, never anyone else's. Most analysts and brokers were recommending that investors buy stocks at 17,500 as value had emerged after a sharp 20 per cent fall in the index. Well, anyone who bought there can't be too happy as we are down to 15,000 now.
Yes, yes I know all that spiel about no-one ever being able to catch the bottom. Please do ask then what mutual fund managers have been doing these last few weeks.. Truth is, people are scared and they want to wait and see how this plays out. Somehow no-one exactly believes that this market will suddenly turn and run away to new highs and investors will be left stranded with cash. We don't seem to be in a market like that. So investors simply want to get a feeling that the market has stopped falling at an alarming rate and the southward momentum has been exhausted. The dust hasn't settled yet. So, if investors feel more comfortable buying 10 per cent higher rather than buying today and panicking at a 10 per cent notional loss, then so be it. Lower profit is certainly more acceptable than a loss. As long as people understand that the market may force them to buy higher and are okay with that risk.