Posted By: Admin
Ever since the stock markets crashed in the third week of March 2020, owing to the announcement of lockdowns and the global pandemic, there were lots of people who were cursing their luck at not having moved out their monies before the stock markets had crashed. A few felt that the stock markets had indeed given way and inspite of a 40% drop chose to move out of their equities and equity mutual funds at the peak of despair in April 2020. They were experiencing JOMO ( Joyful of Missing Out of Equities).
Slowly but surely after the initial shock the global central bankers realizing the enormity of the COVID devastation on the economic landscape, opened the floodgates of funding ( quantitative Easing), this was meant to provide temporary and immediate relief to arrest any sudden movements of monies to ensure that liquidity will be available to enable the economies to deal with the covid situation better. Esp Businesses were given moratoriums to help a slower repayment of debts and payables. All these measures by every global central bank led by the US Feb meant that suddenly there was a surfeit of cash in the system. This additional cash flow coupled with people having more time since they were working from home, allowed all of them to open share trading accounts and start investing in stocks ( now referred to as Robin Hood Investors). A combined effect has meant that the Global stock markets are at a record high, including India. Every day the markets are scaling new peaks and those who are not participating are appearing to be foolhardy at having missed the opportunity to make quick returns. Already people are predicting 60,000 or 65000 on the sensex in the next few months. Now People are experiencing FOMO ( Fear of Missing out on Equities).
This FOMO factor coupled with very low bank interest has made everyone and their uncles & aunt to start investing in Stock markets. The last time we had witnessed such a frenzy was in the Reliance Telecom IPO in 2008, we know how that played out. The global financial crisis of 2008/09 resulted in the JOMO effect on equity investors at that time and took time for them to return to the markets.
Whenever one notices frenzy, one needs to be watchful that a correction cannot be far away. Equity returns are rarely straight line. While there is enough evidence that equities over a period of time deliver the best returns. It is too simplistic to assume that that it will happen linearly. In fact I dare say that since we have a great past 12 months in the stock market, you should expect a low or at best moderate 12 months in the stock markets up ahead. That’s the way
It is important to moderate the expectation one has from Equity investments esp in the near term. We are certainly not suggesting that you should exit your equity portfolio. Only that you may want to take some profits off the table and set your expectations more realistic that the near term returns are likely to be moderate not great from Equities. However if you are someone who is having a 10 year perspective. This is just the beginning…Continue to enjoy the Roller Coaster Ride…. In the end it would be worth it financially.
Between JOMO & FOMO remember that we are here to create wealth to serve our financial goals. Nothing more & nothing less.
By Babu Krishnamoorthy, Cheif Sherpa