Who will win the Uttar Pradesh election? What about Gujarat? Will Narendra Modi win the 2024 elections? When will the Ukraine war be over? Will gas and oil prices go through the roof? Will inflation exceed 9% pa?
When there is so much of uncertainty around, Equity Markets find it difficult to go up. Now comes a new problem - the re-emerging Chinese Covid crisis. What if there are more lockdowns, non availability of semiconductor chips?
Markets hate uncertainty, so March 2020 we saw the lowest prices of stocks. The Indices hit all time lows. Then the uncertainty started lifting - and the markets were lifted, and how! Some shares went up 2x and some went up 5x! That is what the market likes - clearing of uncertainty. A few days ago the ONLY big problem in the world was rising interest rates.
At that stage with a lot of certainty, markets had peaked. Markets love certainty. At this time Putin decided to enter Ukraine! He single-handedly drove up commodity prices and also brought about a lot of uncertainty. Rising inflation, screaming energy prices, etc. have brought more uncertainty to the markets. It is now that the prices will be uncertain. It also meant that Russia decided to give nice big discounts on its energy products - oil, gas, etc. This meant energy prices were hit, and that was actually good for the world economy. Prices are down by at least 30% from its peak.
As a shareholder you got the best deal in March, 2020. As an investor you got the best deal to sell just before the Russian attack on Ukraine. Remember when someone tells you “uncertainty is priced in” or “certainty is priced in” - they are guessing! The Market has an amazing capacity to price risk on a minute to minute basis. In March 2020 it did not know what the Covid attack will do. Now it is refusing to price in the Chinese Covid risk - the semiconductor companies must have stocked enough.
See how the market prices risk? First time there is a big discount. Second time it does not bother at all - the pricing is silently done, and quickly too!
Market timing is not something that I am suggesting. Selling when there is certainty and buying when there is uncertainty sounds very good, but let us leave that to the professionals. Also, you must have heard of a “K” shaped recovery - some companies do well and some do badly. So typically in March 2020 if you had sold Indigo and bought Zoom you would have benefitted. However, in about 5 months time, people start preparing for a “post-covid” world. So the same people who asked you to sell shares of Indigo would now be calling you to buy shares of Indigo! It is not so easy to do it in real time. After 2 years sitting in comfort and having hindsight of 20/20, we can make such comments!
Finding the best day to buy and the best day to sell is an Utopian delight.
Just that it never ever happens!
PV Subramanyam
writes at www.subramoney.com and has authored the best seller ‘Retire Rich - Invest C 40 a day’