LESSONS FROM JAN 08

What percentage of the Indian investor population regrets not getting out at 21000? My guess would be 95 %. Even long term investors are shocked to see the value erosion in their portfolios now. Some of them are even thinking of cashing out, while they still have some profits left on the table. Panic is slowly creeping into the markets as stock values are rapidly eroded.

Looking back it seems that we all got too greedy. But aren't we doing the exact opposite right now by becoming too fearful? We felt that markets would never come down and miscellaneous analysts were egging us on by outdoing each other in predicting higher sensex levels. Some of us were afraid to sell thinking that we would miss out on the gains of tomorrow. The exact reverse is happening at the present moment. When so-called support levels are breached, analysts predict still lower levels. We are afraid that if we buy a stock today, tomorrow it will be available 5 % cheaper.

I am not saying we are at the bottom. I don't profess to know what the bottom is and am not interested in guessing. But I do know that valuations are attractive, just as they were stretched in January. Just like various theories were bandied about to justify high valuations, doomsday scenarios are being painted now.

One cannot sell at the exact top or buy at the bottom. We can take a call based on reasoned past and present indicators and a likely future scenario. Had someone taken a valuation call in December 07 and sold out at 18000, he would have seemed foolish initially as markets rallied another 12 % or so. But in hindsight his actions would have looked extremely wise. Similarly a purchase now might look foolhardy, but it is certain to pay off handsomely in the next 12 months. We need to learn lessons that history teaches us, if we are to profit from the folly of others.