Play Safe Now

A not so innocuous news report by a global brokerage set us thinking about where we are headed as a market. ” $1.2 billion waiting to get into midcaps says CLSA”.

The logic behind this premise interested us even more than the actual premise. The premise was that mutual fund schemes needed to change their portfolios to comply with certain new regulatory norms. To our minds, this looks every bit like a mindless exercise driven more by compliance needs. The logic of selling what you own with conviction and buying what you need to own by category is surely a blind spot. Impact costs are clearly going to hurt investor interest. They come at a time when fund NAVs carry a lot of price massaging. Clearly, the timing of reform in mutual funds is nothing short of awful. And, the impact is going to badly hurt investors.

Investors must steer clear of midcaps for a while. Let the pain settle down. The coming months are likely to be driven by global factors and volatility. Focusing on micro changes in our markets simply won’t help. This is a time when investors who fail to play safe are setting themselves to be sorry later.

 

 

“The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological. Investor”– Howard Marks

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