Only Good News in Stock Market Gloom

The only good news in the present stock market gloom is the fall in oil prices. Oil is selling a bit under $100 per barrel. It has really taken a hit from its highs of $140 odd per barrel. If we had a spike in oil price, even if it were a speculative one, or if we had any other oil related crisis the world over, it would send the financial markets in a real tailspin.

There is real fear on Wall Street. And most companies believe that they might be the next after the fall of Lehmann Brothers. So, the United States government, along with its friends in the OPEC, should ensure stability, or even better a fall, in oil prices for the next week or two till the present crisis subsides. One also hopes that Wall Street does not come up with further gloomy news.

Collapse in Stock Markets

There is a major fall in the stock markets. Wall Stress has been badly bruised. Another one of the venerable financial firms has collapsed. Lehman Brothers is no more and it had been there for the last 158 years. And add to this, another bit, Merrill Lynch has decided to sell itself to Bank of America. And AIG, American International Group, which offered Tata-AIG insurance in India, is trying to keep afloat.

This wave of collapses some after an earlier wave, where we had Bear Stearns being sold off for a pittance. And Citi taking in a big write-down. We also had Fannie and Freddie in deep waters.

The Indian markets are ruling about 4.5% down at the moment. Interestingly, there is nothing which is so serious with India that it should be fall. So, this is actually sentimental. Yes, when the US sneezes, the world catches a cough.

It is undoubtedly shocking and very terrifying for anyone who is into the financial markets right now. But there isn't much room for real panic for the people in the Indian stock markets. In fact, I would suggest my NRI friends and other foreign nationals to seek avenues for investment in the Indian markets.

There is good and real qualitative money to be made from the Indian markets at this juncture. The only important thing to keep in mind is to adopt an intelligent approach.

Recent Stock Market Experiences

Now, believe me, I'm not bragging at all. I had bought shares of Apollo Tyres last month for Rs. 30 a share and today, after the fall in the markets, Apollo Tyres is still selling at Rs. 37 a share. So, we are essentially talking about a profit of Rs. 7 or 23% profit within a month. I don't think that's bad. I could have easily sold my stock. But I am trying to change my investing strategy these days. For a long time in life, I have tried my hand at various trading strategies, inluding day trading, BTST (Buy today-sell tomorrow), very short term trading (with a week's margin), short term and medium term investing (selling stocks at a profit within a time frame of two to six months).

But now, I would like to try my hand at a very different investing strategy in life. There was a time in life, about ten years ago, when I used to follow this strategy. But those days, this strategy wasn't very well worked out in my mind. Now, it seems that it has been well worked out mentally. These days, I have begun investing in stocks the same way as one invests money in long term bank deposits. I am now following the classic long term investment strategy and I have this strong feeling that it is going to pay me pretty well.

Stock Market Moves

Isn't it nice when you find that your own evaluations of the stock markets are backed by well-known brokerages? On August 11, 2008, Anand Rathi, a well-known Indian brokerage recommended Development Credit Bank [DCB] at the current market price of Rs. 58 with a stop loss of Rs. 50 and a medium term target of Rs. 78. Earlier this year, I had bought the stock at Rs. 110 and sold it at Rs. 145 within a short span of three weeks. So, when it started falling and it reached a low of Rs. 45, I thought that was the right time to buy it. But when I was signalling a buy in my personal charts, there was no brokerage recommending it. But now when it began rising a bit, we have Anand Rathi recommending a buy.

I find this really interesting. And fascinating. I am only hampered by big time finance, which is why I am still a small time player. With more finance or with investment finance from some of my friends, I could do a pretty good deal. I would not be able to beat the legendary Warren Buffett because he has been a genius and I have often found him pretty inspiring. But I would have done pretty well if I had started off with an investment partnership.

And I would do pretty well even if I opened one right away!

Investment Perceptions

I have such anecdotes to narrate about the perceptions of most people about the stock markets and about investing that it would probably make you die laughing. People have such outlandish and strange ideas when it comes to investing that one could find it really difficult to believe.

I had a good friend. I still know him. We used to stay nearby and meet everyday. So, one day, about ten years ago, he met me and said, "I have made some money working for a company and I have some extra cash to spare. I would like to discuss investment options with you." I told him, "That's great. But before you begin investing, the first thing we should discuss would be the returns that you would expect on your investments."

Those days, the banks gave a maximum of 10% per annum on term deposits. He had made some money as a freelancer and he wasn't eligible for the Employees Provident Fund, which would have given him a return of 12% tax free. Anyway, he wasn't in the tax bracket but if he were, the maximum tax bracket was 30%, so, the maximum taxable return, he could have got would have been around 17% in a year.

So, when I asked him, what he expected from the stock markets to do for him, pat came his reply. He said, "I would like to double my money in a fortnight but I could wait for a month." I was furious and as he was a good friend, he didn't mind my outburst. I told him, "You jolly well get into a casino!"

Most people have such strange notions about investing money in the stock markets. If the best return that he could have got in the country from safer avenues was 17%, he should have been content with around 25% from the markets. If he set his objectives at 25%, he wouldn't ever lose his money and would invest scientifically and his investments would be strong fundamentally.

Further Fall in Indian Stock Markets

We have had two interesting developments on June 11, 2008. The first was the hike in the repo rate by the RBI and the second is the fall in Dow Jones by 200 points and a possible fear that oil might see another sudden spurt.

These are two interesting triggers for a fall in the markets. On June 11, 2008, the Bombay Stock Exchange rose 296 points to close at 15185.32. I expect the entire day's gain to be completely erased when the markets close on June 12 and most probably we should witness a 450-500 point fall towards the close. But the markets can be very volatile and how they behave, from 9.55 am when they open to 3.30 pm when they close, is any body's guess. I suspect unless the government comes in with some statements or announcements or unless the Asian and European take a breather, we are in for a good fall tomorrow.

It is already 3.30 am and we have another 6 1/2 hours for the markets to open. These falls are the best times to buy great shares at very cheap prices.