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Is This Market Going Up or Down?

After last week’s crash landing, this week wasn’t any better for stock markets around the world.

The Indian markets, represented by the BSE-Sensex, closed the week down by 466 points, or 2.7%. This took the Sensex to sub-17,000 levels for the first time since June 2010.


Source: Yahoo Finance
As we stand now, nobody knows anything.

Is this market going up or down? We don’t know.

But wherever it is going, it seems to be in a hurry to get there.

Maybe the stock market experts or the anchors on business channels can see things we don’t. To us at Safal Niveshak, they’re just as confusing as everything else.

Or as confusing and finicky as Mr. Market, whom the father of value investing Benjamin Graham described as a business partner who “lets his enthusiasm or his fears run away with him.”

Graham’s Mr. Market is a fellow who turns up every day at the shareholder’s door offering to buy or sell his shares at a different price. Often, the price quoted by Mr. Market seems plausible, but often it is ridiculous.

The shareholder is free to either agree with his quoted price and trade with him, or to ignore him completely. Mr. Market doesn’t mind this, and will be back the following day to quote another price.

Graham’s point is that the investor should not regard the whims of Mr. Market (the daily volatility in stock prices) as determining the value of the shares that he owns. He should profit from market folly rather than participate in it.

The investor is best off concentrating on the real life performance of the companies whose shares he owns, rather than being too concerned with Mr. Market’s often irrational behavior.

Anyways, this description applies well to the erratic price movements we are currently seeing.

This is not to say that everything is fine or to ignore some of the recent headlines. Economic growth has been slower than economists expected and could remain sluggish for the foreseeable future. The risks of a a global recession have increased.

Also, as if the worries abut the economy and stock markets were not enough, investors are now worried about the survival of European banks.

So we don’t know what game Mr. Market has in mind. But we know he can play a cruel hand, like he did last week.

As we look at the short to medium term, it seems certain that stocks will be highly volatile…down a week…down more the next one…then up the next…and then down, down, down…until they have finally found their bottom.

But as an investor, you will be better off concentrating on the real life performance of the companies whose stocks you own, rather than being too concerned with Mr. Market’s often irrational behaviour.

Remember, Mr. Market can be extremely irrational in the short term. But he rewards patient behaviour.

Anyways, here’re some interesting posts that we published on Safal Niveshak this week.

Have a nice and safe weekend!

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

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