When the markets are in a state of exuberance, everybody wants to have their part in the drama. When the markets are gripped by fear, nobody wants to play any part in it. All people want to do when there is fear, is sell and go away. Strangely, analysts and market strategists also focus on being right in the near term. So they try to predict markets keeping investor behaviour as the primary factor of measurement. They only want to call the near-term investor behaviour right. This misplaced focus on near-term glory makes them take public positions that are hurtful to sensible long term investing. Market participants like analysts, brokers and fund managers have increasingly become very poor judges of what is a sensible long-term investment strategy. This clearly stems from their inability to apply a sensible, long term vision in their roles. The need to perform in their roles is constantly in conflict with sensible long term investment thinking. The current crash in the Indian markets has put this aspect in sharp focus. The investor who follows the noise and hum of business television is taken through a daily emotional roller coaster that puts soap operas to shame. The market opera stops investors from acting sensibly from a long term investing point of view. A sharp correction in overvalued parts of the Indian equity market was actually just what would give those who missed 2014’s pre-election rally a second chance. Investors must understand that this chance comes not merely with a correction in stock prices. It is coming with the most serious structural change in Indian business and banking. This change is driven by one of the world’s most trusted central bankers and is going to usher in a new era of transparency and ease of doing business in India. The fact that the world is craving for growth in a well-regulated and trustworthy environment should not be ignored. If we provide that environment, as the broad direction seems to suggest, finding capital for growth will not be an issue. Indian investors have a unique opportunity to invest into this phase without paying exorbitant valuations. The good news is that the near-term pain in Indian banking is going to usher in a new era in banking and governance. The trust India will now generate through banking reforms will be the most important economic growth driver. In a world that sees only huge trust deficits, this is no time to undermine the value of trust.
If an investor had bought at the absolute lows, it would have been more a matter of luck than anything else. – Philip Fisher.
