Mon, Mar 24 (Udayan Mukherjee's column in The Hindustan Times):
By now you would have figured out how utterly different 2008 is looking from 2007. How the roaring bull market has degenerated into a virtual bear market.
It is true that 2008 is showing every sign of being a painful year for equity markets, yet let me put a spin on that. But this is only for the stock market investor, not day trader or position trader.
Only for the person who intends to park a substantial part of his savings in stocks for good long-term returns, year after year. I know equity is a bad word just now, but it will not be for ever.
The year 2007 was, for the most part, a terrible year to buy stocks. The second half of the year, when the Sensex started trading above 14,000, was a minefield.
It was only a question of when you would get caught with the excesses. After July 2007 the risk-reward trade-off in a very large number of stocks was loaded totally against the buyer.
Valuations were too high and stocks were priced for perfection. Now that conditions are less than perfect, people are losing their shirt.
The year 2008 could turn out to be the exact opposite. Like 2007 was euphoric while it lasted and then extremely painful immediately after, 2008 could be painful and then utterly rewarding.
I have not the foggiest idea whether the markets will bottom out now, in June, in December or in June next year. That would require a crystal ball.
Whenever it does, 2008 may, in hindsight, look like the best time to have bought stocks. I do not mean today, but during the course of this year.
If this is no more than a one-year bear market, then history will tell you that the highest appreciation always happens when stocks are bought in bear markets and held through bull markets. The risk to this prognosis, of course, is that this is nothing like a sharp, short bear market.
It has just begun and we are going to grind in it for several quarters. The problem is that very few analysts can actually call a bear phase till the market is neck deep in it.
There is no point being complacent about it. Yet, that is the risk that a long-term investor has to take.
You have to forget about a bull market and a bear market, just think of what is conservative fair value for good stocks.
