How much numbers and milestones matter at the stock market becomes self-evident whenever the BSE Sensex touches a new milestone number. Some months ago, it was 50,000 points and now, it is 60,000 points. Such milestones which are ‘celebrated’ by the financial media, especially electronic media, invariably spark a debate on whether a huge correction or even a crash is around the corner.
If I look back at the journey of the BSE Sensex since the late 1980’s, it stood at 510 points in January 1987 and then soared to a new high of 4285 points by January 1992 before dropping to 1991 points within a year in January 1993. The BSE Sensex then soared once again to 5887 points at the turn of the century in January 2000 before literally halving to 2924 points in January 2003. From a point where all seemed lost, we witnessed a huge secular bull run over the next five years that took the index to 20,873 points in January 2008.
The index once again slipped sharply to 8674 points within a year in January 2009 before making a fresh outbreak in late 2013 to end up at another new high of 28,233 points in January 2016. At the turn of the decade, earlier this year in January 2020, the BSE Sensex was once again riding a new high at 42,273 points before the Covid pandemic brought it down to its knees at 25,638 points in March 2020. In just 18 months thereafter, the same index recently touched the 60,000-points mark, reflecting a breathtaking 30,000 plus points uptick in the short span of 18 months.
Clearly, there is enough anecdotal evidence to suggest that there is immense merit in staying invested over really long time frames. However, since investing is an art and not a science, there is no single ‘correct’ strategy that can be deployed at all given points in time and even more so, to approach a raging bull market and fears of a deep correction or crash.
A lot depends on the life-cycle stage of the investor and their near-term goals and objectives. While staying put may be the optimal strategy for those with a longer term horizon for their investment goals and objectives, the same may not be true for someone with nearer term investment goals and objectives. Such a person, and more so, if the goal set has been achieved or nearly achieved should actually be thinking of booking at least partial profits to divert the requisite money off the table.
Similarly, one must also have the discipline to shut out loud external ‘noises’, in this case those who are perpetual doomsday predictors as well as those with irrational exuberance talking of Sensex levels of 200,000 points at a time when we are just past the halfway to the 100,000-points mark. So, for all the opinions one reads (including those of yours truly), one must remember and I re-iterate -- investing is an art and not a science. Hence, there is no single ‘correct’ strategy, at all given points in time.
Ashok Kumar
Head of LKW-India. He can be reached at ceolotus@hotmail.com