Sensex@21,000: What to do now?

Simple - Do not do anything stupid!


I am not suggesting you to either 'buy stocks' or 'not to buy stocks'. I am only encouraging you not to do anything stupid. Stupid, as in getting carried away with your emotions and buying "excellent " stocks at "whatever" the price. Nothing wrong in feeling elated, exuberant and euphoric on watching Sensex touch the 21,000 levels. Be happy or proud or whatever - but don't do anything dumb. In simple terms, do not purchase any stock at a high price.


I think it was Benjamin Graham who said that the profit you make depends not on the price at which you sell a stock but on the price at which you buy it. So, with Sensex at a P/E of 24 and Nifty at a P/E of 25, how sure are you to make money by investing at the current levels?

Assume that you have Rs. 1 lakh with you. Two of your friends ask you for that money as a loan (both are equally trustworthy and you have the option to take money back whenever you wanted it back). Now, in one case, you receive an interest of 8%, which means he gives you Rs. 1 as interest on every Rs. 12.5 he borrowed from you. In the second case, the friend offers you to pay an interest of 2.63%, which means he gives you Rs. 1 as interest on every Rs. 38 he borrowed from you.

To whom would you lend the money .... and why?

What I exhort you to do is ....

1. Remember Warren Buffett's quote -> Be fearful when others are greedy and greedy when others are fearful. It is for you to decide whether the others are currently greedy or fearful.


2. Go and purchase the best book on Investing, namely "The Intelligent Investor" written by Benjamin Graham. If you are an avid reader/investor, read the entire book. If not, go through the Chapter 8 (The Investor and Market Fluctuations) and Chapter 20 (Margin of Safety as the Central Concept of Investment).

By following the above, you can increase your probability of making fewer mistakes and forming an intelligent framework for investing.


Invictus.

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