The present ripple in stock market prices has made reading the economic newspapers a less painful affair. The last two years or so has been a lesson in level of our ignorance of basic economics and our unending greed. Is Infosys worth 32 times PE? Yes, all of us believed. Not so, the world is now telling us.
Where will we go from here? I want to say something profound which sounds vaguely impressive. But the reality is no one knows anything. Nobody has a clue about what would happen in the next six months, let alone three years or so.
So what should we do now? Assume the worst for the future and hope to make the best out of present (remember the song from Waqt- Aage bi jane na tu?) If you are in a position to make some profit or at least recover your orignal cost, do so immediately. Invest it in a mix of fixed income securities and large cap shares whose movement in the last 12 to 24 months has not been too volatile. The gap between the highest and lowest price should not be too large. The down side should be bearable and the up side should be tolerable and not too wild. Understand the industry and study the company you are going to invest. If you do not understand it well, do not touch it.
One view I heard today is that the market is driven by liquidity and not by intrisnic merit. So some wild swings could still happen. We should not have minor earthquakes in our heart when it happens.
Repaying loans out of surplus funds seems to be a good idea. I had thought of it and rejected it last time around. I was greedy. This time, all surplus cash would be used to repay loans accumulated in good times.
Lastly, consult a good astrologer, if you belive in astrology. If he tells you that your time is bad (saturn is changing in Sep 09.), desist from any decision except to keep money in Banks (good banks and not cooperative banks run by people like Ketan Parekh ). Perhaps astrologers are believable than investment bankers. At least astrologers have been around for several thousand years and still survived. Investment bankers did not survive even one down turn.
So who would you chose? Astrologers or Investment Bankers