Moneysights column 4 – Economic Predictions and Stock Price movements

*Am caught up in some personal engagements and hence haven’t been able to update the blog frequently. Hoping to get back to normal posting frequency in 15-20 days.

Doomsdayers are having a field day. The Business channels are having a gala time earning ad revenue and spouting useless crap like ‘Sensex will be range bound’ (oh yeah, the range is 10000-21000), ‘The market is jittery/nervous’ (I really don’t know what that means), ‘The market is cheap by FY13 estimates’ (so, we have already skipped 2012? The world was supposed to end, no?) and so on. I am actually surprised someone pays to advertise on these channels.

Anyway, I can go all day in this media bashing exercise. However, moving on to maybe what I think is an important concept to understand and practice (rather than just paying lip service), I write at moneysights on the importance of not paying attention to economic prediction but just focus on good businesses at good/bargain prices.

Full column here. Excerpt below –

How many times over the past few weeks have we heard these statements?

  1. Sensex is going down! You don’t know? The Indian story is over!
  2. Indian economy is tainted by corruption. This is turning off foreign investors in various sectors. Where do you expect the Sensex to go other than Southwards!
  3. High inflation means lesser consumption by consumers and hence lower sales for companies which means the stock of the companies & hence the Sensex will go down
  4. To control inflation, RBI has increased interest rates. This will turn off companies from investing in fixed assets and impact India’s growth.
  5. Do you know Greece will default? We are an interconnected, global economy now. The tremors will reach the Indian stock market and that’s the reason it’s going down.

I would take a bet that almost everybody would have heard one of these statements, if not all over the past few weeks.

Maybe all the bullet points above are true. Maybe they all aren’t. Who knows? Even if someone knows, why on earth will he be sitting in front of the camera and giving gyaan? He would be somewhere in Greece Golf island playing Golf. Oops did I say Greece? That’s a taboo these days, ok, change it to Canyon Islands, Oops again, Darn it 🙂 There are no safe heavens anymore!

Anyways, I don’t know if you have noticed this – Every time any business TV channel and its famed economists predict a downturn, the market surprises them. Once the market surprises them and moves up, they start blaring out upward targets like no other. Then the market once again surprises them. And the cycle continues! If you ask me, you need to turn off business channels and read a book. Or listen to music. Or just sleep. It is much better usage of your time.

Think of it, if everybody knows and predicts the Sensex will go down, then technically everybody should be selling, right? Why it is not happening, why are we still at 17500-18500 levels? Remember 2007, when even the vegetable vendor used to give stock tips? This time around is similar too. Just that this time there is Sell tips. Almost everybody is bearish.

What should be your take away from this mumbo-jumbo? Simply put – Nothing!

 

And how do you know a good business from a bad business? Or a good price from a bad price? Well, there are a lot of stock screening and stock valuation techniques for that. But at the end of the day, as Rakesh Jhunjhunwala says “The value of a stock and beauty of a girl lies in the eye of the beholder” 🙂

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  1. #1 by deveshkayal on June 30, 2011 - 6:42 PM

    What should be your take away from this mumbo-jumbo? Simply put – Nothing!

    Its “Noise”.

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