Sensex crossed 29000, What Next ?

Sensex crossed 29000, What Next ? 

Every time sensex crosses new numeric level, the same question arises in everyone's mind, right?

At 9000 sensed level suddenly we all feel, it will go to almost zero and heard someone saying market will get close one day, but it didn't happened ? Right ?

Same way now at 29000 level, people feel it will cross 30,000 and then cross 1,00,000 soon ? Really ? Can you predict the same ? Businesses do not stop like that.

So how this numbers really comes from ?

Lets understand, sensex is almost a mirror image of Indian corporate earnings and how they really perform in their business (how their profit grows).

Is it so Complex to understand ? Not at all if you see price and sensex numbers.

Let's learn it with a simple example.

You invest 1 lac in a company / stock, if company do well and generate a profit of say 15%, it will sooner or later reflects in the balance sheet of the same company. if the same company grows at 15% cagr for next 10/15/20 years, imagine a kind of wealth you can create vis-a-vis you invest in Bonds or Fds.

Now you may argue, sometime companies make profit for 5-10 Years but it is not reflecting in a particular stock price, and suddenly you see stock price roars 100%, yes it happens and it will happen in all market across the world, because someone wants to buy and the other feel its cosly, so he sells, that is how market works.

To sum up, equities  will reflects the same valuation as the profit or loss of the particular business will behave.

What now ?

1) One should look at investment horizon of 10year plus in equity markets or mutual funds,

2) Do not expect a miracle, 15% cagr is a very good return over 10 year period.

3) Map your financial goal like retirement/kids education etc., to the investment you are doing...and keep doing it.

4) Put that amount of money which you will not require for next 10years,

5) Have faith in all of the above 4.

Why equity will give inflation adjusted returns ?

As we always say, simple things are always tough to implement.

When we talk about shares of a particular company ! The first thing which comes to everyone's mind is business that company is doing? Right ? 

Now let us understand, when a company is making a product say for example in rs. 100 and out of that 20 rs is profit they make on one product. If the price rise / if inflation goes up and now the same thing is costing them rs. 100, then they will not reduce the profit to zero and sell the product right ? 

the business owner will pass that inflation or price rise to the end consumer and they will not reduce the profit. so when you invest in shares, the inflation always gets adjusted in equity as explained above.

I Can Make Huge Money In Stocks If I Invest Directly: - Somebody told me last week

I Can Make Huge Money In Stocks If I Invest Directly: - Somebody told me last week

If everyone makes money in equity, then why there are only 3% investors in the stock market? and rests are into FD's, Gold, Real Estate and all ? 

You may be right, Say for example, if you have started investing in equities in 2007-2008, what you may have bought?

Reliance Infra, DLF, Suzlon, Orchid, Rcom, and so on..... (They all were talk of the town).this is better known to the investors who already burnt their fingers. 

I must throw some light here – they all are below their investment price- some are even less than half the price.

It’s always said, Retail investors never makes money as big as Seasoned Investor makes(the one who does research or invest for long term through mf), retail investors come into market when other runs out, they would love to buy stocks when its already in bubble phase and sell it when actually its time to buy stock, or in investment language- over priced High PE stocks, feeling companies are going to make huge profits by selling their goods and earning on the same...agreed...but when markets are low, this companies are available at decent discount / prices, still they value the business when the prices are too high, one of the example is Page Industries (PE of 71 against Industry PE of 41), also one has to understand the underling risk into particular stock – industry, & industry related regulations when you invest directly in stocks.

One can invest in direct equities only if:-

1. You read balance sheets on regular basis (only if you can analyse it)
2. You understand P&L, ROE, PE and so on.
3. You understand Business of the companies you invest in.
4. You understand the risk in the business such as (market share of business going up or down) etc., etc.,

I came across such question that mutual fund has only grown my money 4-5 times & stocks gone up by 40 times. Hahahahaha,

Some more things to look here :-

1. 1^st thing, You have not invested in that stock which has gone up by 40 times.
2. If yes, you are the best fund manager and you should not invest through mf.
3. One should look at holding period of they feel went up by 40times.
4. Most retail investors sell the stock/mf when it gets doubled; they never hold it till eternity.

Happy Investing,