Equity aversion has been a natural option for investors who punted on sunrise sectors in 2008 and got badly burnt. The irony is that they chose to wait for their investment errors of 2008 to correct. The wait has hurt them terminally and there is little hope of recouping their losses in infra and power stocks. The resultant risk aversion has seen investors prefer FMP’s and debt funds over the past few years. The falling interest rates and the trending scenario indicate that debt may well become an unattractive option over the next few years. This could well lead to a scenario where investors are forced to move into equity to compensate for falling returns from debt. The economic recovery will clearly help equity return to favour over time. Importantly, investors must understand that the move out of debt to equity needs to be calibrated. Importantly, you need to rebalance your investments and ensure that you are ahead of the curve.
The lack of will and conviction at the right time is the cause of all failed investing.
Suzlon, Opto circuits, Kingfisher, ICSA,Tulip telecom, On mobile, Deccan chronicle – these new age businesses have one thing in common – they wiped out 90% of market capitalisation over the past decade. One can easily add another hundred names to the list of fallen stocks that promised big-time and failed to translate. Markets tend to excessively reward promise and punish underperformance and history is replete with such examples. Over paying for promise is the root cause of such losses and investors who are cautious enough to walk away from over priced investments will effectively protect their portfolios from such large scale erosion. Another common folly investors commit is to buy these stocks when they have lost half their value. The premise is that they are selling cheap in relation to peak valuations. Thinking that a stock is cheap on the basis of how much it has fallen is the easy way to lose capital permanently. The best way to evaluate a fallen stock is to assess its present fundamentals in relation to its current market price and make an independent investment judgement.
Get ready to sow. Invest before it rains.