Author - Rutuja Chavan

14 Jan

Week in a Nutshell January 9th-13th

Technical talks

NIFTY opened the week on 9th January at 18,130 and closed on 13th January at 17,952 above the 20-week simple moving average. The index closed at 17,956 after making a high of 18,141. We expect the recent high of 18,141 to be the key resistance level and the 20 WMA of 17,883 to be the key support level.

During the week, IT (+3.5%), AUTO (1.6%) and MEDIA (1.3%) were the top gainers while FMCG (-1%), was the only loser.

Weekly highlights

  • According to the World Bank’s most recent economic analysis, India’s economic growth rate is expected to drop from an anticipated 6.9 per cent in 2022–2023 to 6.6 per cent in the following fiscal year. Of the seven largest emerging-market and developing economies, India is predicted to increase its economy at the fastest rate. The slowdown in the global economy and rising uncertainty are expected to weigh on export and investment growth
  • In December, the Consumer Price Index (CPI) decreased to 5.72% as compared to 5.8% in November and 6.7% in October 2022, respectively. The softness in the vegetables and food inflation are the main causes of the drop. But the core inflation is a cause of concern as it has remained above the 6% mark. Food inflation, which makes up roughly 40% of the inflation basket, was 4.2% in December as opposed to 4.7% in November.
  • During the week, IT large caps- TCS, Infosys, HCL Tech and Wipro released their 3QFY23 earnings. These companies have guided about a slowdown in IT spending in BFSI, Hi-Tech, Telecom and Retail segments. Lower levels of attrition, improved utilization and lower subcontracting costs are expected to drive margin expansion.
  • At the Auto Expo that took place in Delhi, EVs and EV-related components and alternate fuel technologies across PVs, CVs and 2Ws seemed to be the key focus areas. Maruti Suzuki launched Jimny and Baleno crossover Fronx. Apart from that EVX concept car revealed, 60kWh battery pack offering 550km of driving range. Tata Motors displayed a range of models including Sierra EV, Avinya Gen 3 EV, Harrier EV and some variants of existing models. On the CV side, Ashok Leyland, VECV and Tata Motors displayed a few products with a special focus on alternative fuel technologies, including EVs, flex fuel, hydrogen fuel cells, hydrogen-ICE, CNG-LNG, etc.
  • West Texas Intermediate sustained its price of around $79 per barrel this week, up by almost 7%. The benchmark for Brent is expected to have its strongest week since October. Following the removal of the country’s Covid Zero policy, China is ramping up its imports of oil after Beijing issued a new round of import allowances. This year, consumption is expected to reach a record high.
  • The US consumer price index fell 0.1% from November, bringing the annual change to 6.5%. The ‘core’ CPI (excluding food and energy) rose another 0.3% in December, accelerating slightly from November and leaving the annual core rate up 5.7%. When it meets again at the end of the month, the central bank is anticipated to increase its benchmark rate by at least a quarter per cent.
  • US indices Nasdaq and S&P 500 rallied during the week in anticipation of favourable CPI data. The indices rose after being on a declining trend for weeks due to concerns regarding recessionary pressures.
  • During the week, Foreign Institutional Investors (FIIs) sold shares worth ₹ 96,056 mn and Domestic Institutional Investors (DIIs) bought shares worth ₹ 100,420 mn.

Things to watch out for next week

  • HDFC Bank’s earnings release and management commentary on 14th January will set the tone for banking stocks in the next week. FMCG giant Hindustan Unilever, Asian Paints and large-cap banks like ICICI Bank and Kotak Mahindra and Reliance Industries are set to release their 3QFY23 earnings next week.
  • The 3QFY23 results season is anticipated to set the market’s sentiment. Investors will look forward to hearing management commentaries about domestic economic recovery and future earnings growth trajectory.
  • Countdown to the Union Budget for FY24 to be announced on 1st February has already begun. Expectations and speculations about the budgetary announcements will add to the market’s volatility.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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03 Dec

This Week in a nutshell (28th Nov to 2nd December)

Technical talks

NIFTY opened the week on 28th November at 18,430 and closed on 2nd December at 18,696 after making an all-time high of 18,887. The 20WMA of 18,338 may act as a key support level, while 18,885 may act as key resistance for the index.

Among the sectoral indices, Media (+4%), Realty (+4%) and FMCG (+2.4%) were the top gainers while there were no losers in the week.

Weekly highlights

  • Auto companies reported their November sales volume during the week. Post-festive season wholesales in the two-wheeler segment witnessed inventory destocking amid strong retail demand while passenger vehicle segment retails were largely in line with wholesales. Additionally, the size of production of high-end two-wheelers continued to suffer from chip shortages, causing wholesale numbers for November 2022 to decline even more month over month for all.
  • Though inflation has cooled in India, the central bank is expected to raise interest rates by 35 basis points to 6.25% at its December 5-7 policy meeting. Rate increases are anticipated to be driven by two factors: domestic inflation and US rate hikes to avoid pressure on the rupee.
  • Oil experienced its largest weekly increase in a month after a volatile week marked by China lifting covid limitations and speculations over the OPEC+ output strategy. The outlook for energy consumption was aided by the peculation of OPEC+ output cutbacks and the loosening of covid restrictions. Brent crude futures were up 0.4%, at $87.25 per barrel by 1441 GMT. U.S. West Texas Intermediate (WTI) crude futures rose 0.7%, at   $81.77 per barrel.
  • A gauge of food prices used by the UN fell 0.1% last month, reaching its lowest level since January. Wheat and corn prices fell after Ukraine’s grain export agreement was renewed, and food demand is being limited by the possibility of a worldwide recession. Rising food costs have been a significant factor in the global inflationary spiral that is causing a cost of living problem in nations from Malaysia to the UK.
  • U.S. stocks were down on Friday after a better-than-anticipated November jobs data dampened hopes that the Federal Reserve might slow the rate at which it raises interest rates. After Fed Chair Jerome Powell’s remarks about reducing interest rate hikes as early as December, stocks had risen earlier in the week.
  • FII (Foreign Institutional Investors) turned net buyers this week, buying shares worth Rs 1,50,770 mn. The additional 1.15% share in Zomato that Temasek, an investment fund run by the Singaporean government, purchased on November 30 is included in the FII purchases.
  • DII (Domestic Institutional Investors) were net sellers, selling shares worth Rs 13,350 mn.

Things to watch out for next week

The market movement will continue to be determined by the flow of global news. The RBI’s credit policy announcement next week and the US Fed rate-setting meeting in mid-December are the two immediate triggers that will decide the sentiment of investors in the near future.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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29 Oct

This Week in a nutshell (Oct 24th to Oct 28th)

Technical talks

This week was a truncated one on account of Diwali. NIFTY opened the week on 25th October at 17,794 and closed on 28th October at 17,786. The 50WMA of 17,061 may act as a key support level, while the recent weekly high of 17,838 may act as key resistance for the index.

Among the sectoral indices, PSU Bank (+5%), Auto (+4%) and PSE (+3.5%) were the top gainers while FMCG (-0.7%), Media (-0.4%) were the losers in the week.

Weekly highlights

  • The Monetary Policy Committee will meet again on November 3rd, according to the central bank. According to an RBI statement, the meeting would be held in accordance with RBI Act Section 45ZN, which describes the actions the central bank may take if it fails to achieve the inflation target.
  • California-based company, Apple Inc’s revenue and profit both topped analysts’ estimates despite sales of iPhones and services being softer than expected last quarter. High levels of inflation and a slowdown in consumer spending are expected to impact the growth prospects of the company in the near term.
  • Following a meeting with King Charles III, Rishi Sunak, the leader of the Conservative Party, was sworn in as prime minister of the United Kingdom on Tuesday, according to a statement sent by Downing Street late on Monday.
  • Oil’s weekly gain was curtailed as investors stayed away from risky investments due to the deteriorating outlook for China and the global economy as a whole. As a risk-off mood extended over larger markets on Friday, West Texas Intermediate fell to about $88 per barrel. Investors’ expectations that Beijing will prolong its time to abandon Covid Zero are dimming China’s economic development prospects, while the economies of France and Spain shrank in Europe.
  • The US markets bounced back after a series of bear market lows as tech shares rallied followed by Apple’s earnings release that topped analysts’ estimates. US’s economic data also contributed to positive investor sentiments as it revealed that the Federal Reserve’s fight against inflation is making some headway. The fourth consecutive rate increase of 75 basis points by the Fed is still anticipated by economists to take place next week.
  • FII (Foreign Institutional Investors) turned net buyers this week, selling shares worth Rs 39,860 mn. DII (Domestic Institutional Investors) were net sellers, buying shares worth Rs 12,400 mn.

Things to watch out for next week

  • We expect markets to continue volatile as a result of investor reactions to earnings releases and macroeconomic news such as supply-related constraints, interest rate hikes, and rising inflation.
  • The monthly auto volume data from companies like Bajaj Auto, Maruti Suzuki, and Tata Motors will be watched. Commentaries about festive demand, export business from auto companies are expected to give some idea about the domestic and international economic recovery.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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01 Oct

This week in a nutshell (26th September- 30th September)

Technical talks

NIFTY opened the week on 26th September at 17,165 and closed on 30th September at 17,094 after declining to 16,750. The 50WMA of 17,100 may act as a key support level, while the recent weekly high of 18,320 may act as key resistance for the index.

Among the sectoral indices, Pharma (+2.9%) and IT (+1.5%) were the top gainers while Energy (-3.5%), Auto (-3%), and Realty (-3.0%) were the losers in the week.

Weekly highlights

  • On 30th September, in its ongoing attempts to control inflation in the economy, India’s Monetary Policy Committee increased the benchmark repo rate by 50 basis points to 5.9%, marking its fourth straight increase. The Monetary Policy Committee maintained its stance of focusing on removing accommodative measures in order to keep inflation within target while fostering growth in the upcoming years. At an unanticipated meeting in May, the committee raised rates for the first time by 40 basis points. Then, by 50 basis points in June and 50 basis points in August
  • The majority of the drop in India’s foreign exchange reserves is due to the shift in valuation as the dollar rose. India’s foreign exchange reserves stood at $537.5 billion, Das said in his monetary policy speech on Friday. About 67% of the decline in forex reserves in FY23 was due to valuation changes resulting from dollar appreciation, he said.
  • The year’s best market for car sales is still India. Sales have been consistent thus far in 2022, and with the festive season commencing at the end of September, we anticipate a higher fourth quarter, according to a note written by Moody’s Investor Service. India will beat its regional and international competitors thanks to a more improved macroeconomic climate, the reduction of semiconductor shortages, and dealer restocking, it added.
  • According to the Swedish news agency, a fourth leak on the Nord Stream pipeline has been discovered off the coast of southern Sweden. All four leaks that have been found are in international seas; two are close to Sweden and two to Denmark. Since Russian President Vladimir Putin invaded Ukraine seven months ago, Europe and, by extension, the rest of the world, have been dealing with an energy crisis.  The pipeline leaks have added to Europe’s existing economic woes.
  • Concerns about historically high inflation and future monetary tightening by central banks, particularly the Federal Reserve, would probably temper any sustained rally. BOE’s sudden intervention to buy an unlimited amount of long-dated bonds sparked record gains for gilts. Last Friday’s announcement of significant tax cuts by UK Chancellor of the Exchequer Kwasi Kwarteng led to a run on British assets due to worries about the government’s ability to pay for the change and its potential to further accelerate inflation.
  • US markets plummeted repeatedly by the Federal Reserve’s resolve to keep raising interest rates until inflation eases. Wall Street indices were volatile during the week with Nasdaq and S&P ending 1.7% and 1.5% lower respectively on Friday.
  • As concerns about restricted oil supplies were overshadowed by growing worries about a global recession and a rising dollar, oil is anticipated to post its first quarterly loss in more than two years. West Texas Intermediate prices, which have fallen by almost 24% this quarter, were trading close to $80 a barrel on Friday. The dollar’s recent record-high rise has rattled crude as aggressive central bank rate hikes cloud the outlook for global growth.
  • FII (Foreign Institutional Investors) turned net sellers this week, selling shares worth Rs 1,59,900 mn. DII (Domestic Institutional Investors) were net buyers, buying shares worth Rs 1,37,440 mn.

Things to watch out for next week

  • Auto companies are expected to release their September volumes of sales. The early festive season this year, which started on 26 September versus 7 October last year, is expected to brighten the outlook for the passenger vehicle (PV) segment. However, the two-wheeler (2W) segment is expected to be muted given the weak rural demand.
  • Quarterly updates by FMCG companies like Marico and banks are expected to drive the markets in the coming week.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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23 Jul

This week in a nutshell (18th July- 22nd July)

Technical talks

NIFTY opened the week on 18th July at 16,183 and closed on 15th July at 16,719 (+3.3%). The index is trading above the 20DMA level of 16,580. On the upside, the 50DMA level of 17,073 might act as a resistance. The RSI (52), and MACD turning upwards suggests a positive sentiment ahead.

Among the sectoral indices, PSU BANK (+7.7%), Private Bank (+6.6%), and IT (+6.4%) led the gainers, whereas Pharma (-1%) was the only loser this week.

Weekly highlights

  • IMF chief Kristalina Georgieva cautioned policymakers from the Group of 20 major nations on Saturday to take immediate measures to tackle inflation, saying that the “exceptionally uncertain” global economic outlook may worsen if higher prices persisted.
  • Sula Vineyards has filed papers with the market regulator Securities and Exchange Board of India (SEBI) to raise capital through an initial public offering ( IPO). If the plans go forward, it will be the first IPO in India by a pure-play wine company, and the second in recent weeks by a player in the alcohol and spirits sector.
  • India’s foreign exchange reserves plunged by US$8 billion in the week ended July 8 to US$580.25 billion, the lowest in more than 15 months, data released on July 15 by the Reserve Bank of India (RBI) showed. The decline in reserves was driven by a US$6.66 billion drop in the RBI’s foreign currency assets, which fell to US$518.09 billion from US$524.75 billion as of July 1.
  • GDP growth predictions for 2022 remain the highest among developing market peers for India. Passenger vehicle sales, two-wheeler sales, electricity generation, and bank credit all increased in June for the second month in a row. The June unemployment rate (7.8 percent, according to CMIE) is higher than in May but significantly lower than it was in February (8.11 percent).
  • Less than three weeks after they were implemented, the government lifted duty on gasoline exports and reduced windfall levies on other fuels.
  • Reliance Industries Ltd reported a 7.9% increase in profit QoQ for 1QFY23 on the back of improved performance of oil-to-chemicals, retail and telecom businesses. However, it failed to meet expectations. The profit was impacted by higher finance costs as a result of rising interest rates, rupee devaluation, and lower other income.
  • The Down Jones Industrial Average, NASDAQ and S&P500 opened the week in red. However, positive earnings release resulted in a three-day winning streak for the indices. The NASDAQ and S&P500 fell 1.7 percent and 1%, respectively, on Friday, as disappointing earnings from social media companies and poor economic data stoked recession fears.
  • The ECB boosts interest rates by 50 basis points, the first increase since 2011. On Thursday, the European Central Bank raised interest rates more than anticipated, showing that concerns over runaway inflation now outweigh growth considerations, even as the eurozone economy struggles to recover from Russia’s war in Ukraine.
  • FII (Foreign Institutional Investors) were net buyers of shares worth Rs 40,380 mn and DII (Domestic Institutional Investors) were net buyers of shares worth Rs 9,380 mn this week.

Things to watch out for next week

  • With results season picking up, quarterly numbers are to be watched out for. Auto companies like Bajaj Auto, Maruti Suzuki, and Tata Motors are set to report earnings next week. Commentaries about the semi-conductor shortage situation and demand sentiments from auto companies are expected to give some color about the economic recovery.
  • We expect markets to continue volatile as a result of investor reactions to earnings releases and macroeconomic news such as supply-related constraints, interest rate hikes, and rising inflation.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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14 Jul

The Impact of Rupee Depreciation

The rupee has been on a downward spiral since January 2022 (-6.28%) leading to negative market sentiments. It settled at a fresh low of ₹79.64 on 13th July, 34 paise away from ₹80.    Rising crude oil prices, a strengthening Dollar Index, and huge amounts of FII (Foreign Institutional Investors) outflows in Indian markets are the primary reasons for the depreciation of the rupee.

Source: Trading View

What does the depreciation of a currency exactly mean?

Currency depreciation is the loss of a currency’s value in terms of its exchange rate versus other currencies. It specifically refers to currencies with a floating exchange rate, which is a system in which the value of a currency is determined by the forex market based on supply and demand. For example, if the value of 1 USD changes from ₹75 to ₹80, the change will be termed ‘depreciation’ of the rupee.

How does this impact import?

India, as a net importer, relies heavily on imported goods to meet its needs. Imported goods become more expensive due to depreciation in the value of the rupee leading to inflationary environments. India imports 80% of its crude oil and this has a multiplier effect on the prices of fuel – diesel, petrol, and cooking gas – which are already high.

Industries like oil and gas, paints, food, and beverages that depend on imports for their raw material needs suffer when the currency depreciates. Elevated commodity prices tend to dent the profitability of these companies. Industries usually pass on these elevated prices to customers to reduce the hit on profitability.

How does this impact export?

From a revenue perspective, industries like Pharma and IT benefit when the currency depreciates as companies earn more rupees while exchanging dollars. Pharma companies with subsidiaries outside of India tend to report higher consolidated margins because higher cost inventory translates into lower operating expenses.

Current Account Deficit widens

Current Account Deficit (CAD) is a measurement where a country’s imports of goods and services exceed its exports. A depreciating currency coupled with elevated commodity prices tends to inflate the CAD due to expensive imports and force the central bank to dip into its forex reserves to finance the deficit. India’s CAD widened to a record high of $25 billion in June from $24 billion in May. On a quarterly basis, the gap increased 122.8% in the June quarter to $70 billion from $31 billion in the year-ago period.

Source: RBI Website

 How does the RBI intervene?

When the value of a country’s domestic currency tumbles, the central bank intervenes by selling its foreign reserves, causing capital outflow. This aids in curtailing the arresting in the value of the domestic currency. According to the RBI’s Weekly Statistical Supplement, the RBI sold $5 billion in foreign exchange reserves during the week of July 1, 2022, reducing the overall reserves to $588 billion.

 

Source: RBI Website

Inflation, combined with currency depreciation, has a double-whammy effect on the economy and consumers. Many Central Banks around the world, including the RBI, have raised interest rates to combat inflationary pressures in raw materials and other commodities. This is also expected to help moderate the Rupee’s value decline. The RBI has also announced a slew of policies aimed at increasing forex inflows while maintaining overall macroeconomic and financial stability.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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23 Jun

Navigating through the challenges of the IT industry

During the 4QFY22 result season, stocks of IT services companies plummeted due to managements’ comments on probable medium-term margin pressures. IT stocks have been in a slump since then and have been struggling to show some signs of reversal. How does one navigate through this sector?

Demand prospects for Digital and Cloud Services:

Digital services comprise of service and solution offerings of an IT company that enable clients to transform their businesses. These include offerings that enhance customer experience, leverage AI-based analytics, and big data, engineer digital products and IoT, modernize legacy technology systems, migrate to cloud applications and implement advanced cybersecurity systems. Most firms are transitioning through IT and cloud-based solutions to meet competition and cut costs. Global lockdowns and work from home (WFH) culture have accelerated the expansion of digital services.

The BFSI sector is the largest contributor to the revenues of many IT companies. Enterprise clients in the Financial Services sector have ramped up tech spending to enhance customer experience, digitize core systems, and leverage technology to strengthen risks and controls.

Source: Company quarterly update

Cloud migration has picked up pace in the last 3 years. The recent global lockdowns and WFH culture led by Covid-19 have acted as a trigger to accelerate this journey. Enterprise clients are looking to migrate to cloud-based operations, which act as a business continuity tool in times of uncertainty. The shift to hybrid working models has contributed to the demand for IT services. Cloud transformation helps clients deploy streamlined operational efficiencies, increased adaptability and scalability, data security, and cost management.

Supply-side constraints

The IT industry has been facing certain structural headwinds such as:

Attrition levels: Voluntary attrition is when employees leave an organization for better prospects in the industry. With a robust demand environment, IT services organizations have seen higher attrition, resulting in supply-side constraints since 2QFY22. These challenges are expected to put pressure on margins over the medium term. IT companies are taking measures to stabilize attrition levels by correcting compensations, faster career growth, skill development programs, and greater engagement with employees.

Source: Company quarterly update

Subcontracting costs: Subcontracting is the process of outsourcing partial obligations of a contract. Due to tight labor market conditions and the non-availability of talent in-house, IT firms have turned to subcontractors. Rising subcontracting costs have brought margins under pressure. Reduced dependency on these services through increased hiring programs and stabilization of attrition levels can subside margin pressures.

Higher retention, hiring costs, and travel costs: Wage increments, employee retention costs, and accelerated hiring are some of the key factors that could drive margin pressures. With the reopening of economies, we expect travel costs to normalize over the medium term.

Industry-wide outlook:

While the above-mentioned factors are expected to take a hit on the profitability of IT services companies, we expect demand prospects to be robust with digital transformation and cloud migration being a key area of focus for enterprise clients. We expect margin pressures to persist over the medium term.

Should one invest now?

We believe the favorable long-term outlook remains intact, driven by enterprise client demand for cloud and automation, improved utilization levels, as well as the normalization of inflationary pressures. Increased costs due to supply challenges are likely to be transient. This may be the right time for investors with a longer time frame for investing to look at the sector.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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17 Jun

Short-Term Performance is Everything

Two years ago value investing was dead, now it is the obvious approach to adopt in the current environment. What has changed? Short-term performance. There are more captivating rationales but underlying it all is shifting performance patterns. These random and unpredictable movements in financial markets drive investors’ behavior and are the lifeblood of the asset management industry; but they are also a poison for investors, destroying long-term returns.

Narratives + extrapolation

Short-term performance in financial markets is chaotic and meaningless (insofar as investors can profitably trade based on it), but they don’t see this; instead, they construct stories of cause and effect.  Furthermore, because the stories are so compelling, investors are certain that they will go on forever. This is why when performance is strong absolutely anything goes. Extreme valuations, unsustainably high returns, and made-up currencies cannot be questioned – haven’t you seen the performance, surely that’s telling you something? Of course, what it is telling is not particularly useful. It is just that investors struggle to accept or acknowledge it. There must always be a justification.

Performance is not a process

Financial markets do not provide short-term rewards for efforts and hard work. Nor can any investment approach consistently outperform the market except by chance (unless someone can predict the near future). Many investors seem to accept this. If performance is good a fund manager can say almost anything and it will be accepted as credible. If performance is bad then everything said will be disregarded. The problem with lauding short-term performance as evidence of skill poses the question of what happens when conditions change. If the process leads to consistently good short-term outcomes, what does one say when short-term outcomes are consistently bad? When performance is strong it is because of ‘process’, when it’s weak it is because of ‘markets’.

Sustaining the industry

Not only do the uncertainties of markets give investors something to talk about, but they also give them something to sell. The sheer number of funds and indices available to investors is a direct result of the randomness of short-term performance. There will always be a new story or trend to exploit tomorrow. Judgments made based on short-term performance will make everyone look skillful some of the time.

Misaligned incentives

The obsession with short-term performance is a vicious circle. Everyone must care about it because everyone cares about it. This creates a harmful misalignment problem where professional investors aren’t incentivized to make prudent long-term decisions; they are incentivized to survive a succession of short-time periods. Irrespective of whether this leads to good long-term results.

Source: ‘Short-Term Performance is Everything’, by Joe Wiggins published on www.behaviouralinvestment.com

Asset Multiplier Comments:

  • If investors are concentrated on short-term success, long-term returns may be unsatisfactory.
  • Investors can avoid the chances of capital erosion and damaging outcomes by choosing to stay focused on their long-term investing approaches.
  • They should refrain from trying to make sense of short-term market fluctuations because doing so can be mentally taxing and lead to poor choices.
  • Long-term investing decisions can make one look foolish in the short term, but they are sustainable ways of achieving capital gains over the long run.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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09 Jun

What We Should Remember About Bear Markets: Part II

(In continuation with the previous article…)

Some losses won’t be temporary: For sensibly diversified, long-term investors the losses from most bear markets should be temporary (there is a long-run premium attached to equity investing after all), but investors should not naively assume that everything will recover. Imprudent investment decisions will be exposed in bear markets. Inappropriate leverage, unnecessary concentration, and eye-watering valuations tend to bring about permanent losses of capital that time will not heal.

Emotions will dominate: The ability to make good, long-term decisions during a bear market is severely compromised. The emotional strains that investors are going to feel will outweigh rational thought – what happens if things continue to deteriorate and they do nothing? It is during such times that systematic decision-making – such as rebalancing and regular saving – comes to the fore.

Risk tolerance will be examined: Bear markets are the worst possible time to find out about one’s tolerance for risk. Everyone becomes risk-averse when they are losing money. The issue for investors is that experiencing a 37% loss in real life is very different from seeing it portrayed as a hypothetical situation. If possible, investors should avoid reassessing their appetite for risk during tough periods.

Investors will extrapolate: During a bear market, it’s difficult to perceive anything except doom and gloom. Investors might believe that things will keep getting worse – prices will be lower again tomorrow.

Each bear market will be different: Investors should ignore all charts comparing current declines with other bear markets in history, they are entirely unhelpful. There is no reason to believe that such a deeply complex, unpredictable system should mimic patterns of the past. Each bear market is unhappy in its own way.

Bear markets are the ultimate behavioral test: The outcomes of bear markets are more about investors than they are about the market. Investors entering a bear market with identical portfolios will have wildly different results based on the decisions that they make during it.

Source: ‘What We Should Remember About Bear Markets’ by Joe Wiggins published on behaviouralinvestment.com

Asset Multiplier comments:

  • It is difficult but necessary to remain a long-term investor during bear markets. During times of uncertainty, investors should resist allowing their emotions to influence their rational decision-making.
  • Rather than chasing winners or trying to time the market, investors should concentrate on rebalancing their portfolios and keeping them steady.
  • Accepting that stock markets have ups and downs is a key element of investment discipline. This helps investors protect their capital and maintain their calm amidst turbulent markets.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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02 Jun

What We Should Remember About Bear Markets: Part I

The following article is taken from ‘What We Should Remember About Bear Markets’ by Joe Wiggins.

Bear markets are an inescapable feature of equity investing. They are also the greatest challenge that investors will face. This is not because of the (hopefully temporary) losses that will be suffered, but the poor choices investors are liable to make during them. Bear markets change the decision-making dynamic entirely. In a bear market, smart long-term decisions often look foolish in the short-term; whereas in a bull market foolish long-term decisions often look smart in the short term.

If investors are to enjoy long-run investment success, they need to be able to navigate such exacting periods. There are certain features of bear markets that it pays to remember:

They are inevitable: Bear markets are an ingrained aspect of equity investing. Investors know that they will happen; they just cannot know when or why. Their occurrence should not be a surprise. The long-run return from owning equities would be significantly lower if it were not for bear markets.

It will feel predictable: As share prices fall, hindsight bias will go haywire. It will seem obvious that this environment was coming – the warning signs were everywhere. Investors will heedlessly ignore all the other periods where red flags were abundant and no such market decline occurred.

Nobody can call the bottom: Market timing is impossible, and this fact does not change during a bear market. The only difference is the attraction of attempting it when falling portfolio values can become overwhelming, and the damage it inflicts will likely be greater than usual.

Economic and market news will be conflated: The temptation to interlace economic developments with the prospects for stock market returns can become irresistible during a bear market. Weak economic news will make investors increasingly fearful about markets, despite this relationship being (at best) incredibly hazy.

Time horizons will contract: Bear markets induce panic, which shortens time horizons dramatically. Investors stop worrying about the value of their portfolio in thirty years and start thinking about the next thirty minutes. Being a long-term investor gets even more difficult during a bear market.

Investors don’t consider what a bear market really means: In the near-term, bear markets are about painful and worry-inducing portfolio losses, but what they really are is a repricing of the long-run cash flows generated by a business / the market. The core worth of those companies does not fluctuate nearly as much as short-term market pricing does.

Lower prices are good for long-term savers: For younger investors saving for the long-term, lower market prices are attractive and beneficial to long-run outcomes (it just won’t feel like it).

Source: ‘What We Should Remember About Bear Markets’ by Joe Wiggins published on behaviouralinvestment.com

Asset Multiplier Comments:

  • Losing investment plans during bear markets is inevitable. Although difficult, long-term investors should sit through such exacting periods patiently and stick to their investment approaches.
  • Investors can use bear markets to their advantage by accumulating quality stocks at cheaper valuations and profiting from long-term gains.
  • Investors should avoid getting consumed by noise and immediacy and focus on building wealth over the long term.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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