Off the kerb: It could be a curious mix of greed and fear on D-St

“You’ve got to know when to hold ’em Know when to fold ’em Know when to walk away Know when to run”Country music buffs might remember these lines from the Kenny Rogers’ 1978 album, The Gambler. In the track, the American singing icon depicted a game of poker as a metaphor for life. Wall Street, known for its constant craving for inspiration and adages, soon took over, analogizing the song’s philosophy to stock market investing. An investor’s loose adaptation of these lines would be: Have a clear idea of when to buy a stock, how long it should be held and when it should be sold.To be sure, 2018 was a challenging period for the markets and with the New Year likely to be trickier, the earthy wisdom behind such proverbs are resonating with investors. In 2019, market participants, deluged by conflicting economic readings, split analyst forecasts and political uncertainties, are wondering how to navigate the tricky waters.The previous year tested investors, who had to deal with an abrupt reversal of fortunes. For over four years, the stock market had an almost uninterrupted bull run. Many stocks — mainly small-caps — soared to levels that were last hit in the peaks of the previous bull rally that ended in early 2008. The good part was investors, who were stuck with illiquid small-cap names, got an opportunity to free themselves of these stocks, probably at a profit. The bad news for those investors still holding them, or those that entered at highs, is that most of these stocks are unlikely to revisit the recent peaks anytime soon.The levels at which these stocks were trading at the start of the year had disaster written all over them. Many seasoned investors recognised it as early as in mid-2017; several of them opted to hang in there, while some others folded up and walked away — probably inspired by Kenny Rogers. It took a while before the collapse finally started in February 2018 that led to many midand small-cap stocks falling between 50 per cent and 70 per cent.By the end of 2018, the stock market appears to have settled down but the zing is missing. The stability in the market is thanks to the continuous flows into equity mutual funds from smaller investors through the now famous SIPs or systematic investment plans — a system that allows investors to put in a fixed sum regularly —which is mechanically finding its way into the markets every month. Equity mutual funds receive almost Rs 8,000 crore through SIPs every month, compared with Rs 6,600 crore last January. But, the energy is missing because many investors with deeper pockets are not returning to the market despite many stocks correcting sharply from the peaks. These individuals are parking a large chunk of their incremental money in debt mutual funds and bonds or looking for short-term trading opportunities. For instance, the covered call strategy — which involves a simultaneous purchase of a stock or stock future and the sale of the stock’s call option — is popular among high networth investors.Although the recent correction has made share valuations cheaper compared to 2016 and 2017, rich investors are hesitant to plough their money back into stocks for the long run at this stage of the market cycle. They are in a cash-preservation mode mainly because of the global uncertainties — primarily, the US. Various commentaries emanating from Wall Street are suggesting a downturn there in 2020 as the US Fed could be forced to raise interest rates to keep inflation under check. The other interpretation is that the American central bank will not wait for the recession to set in and will cut rates much before. But, the fact that the US has not seen a recession for 10 years is keeping investors on the edge.The upcoming events at home, chiefly, the general elections, are making investors rather nervous. Although corporate earnings might finally see a revival this year, investors are not excited in a big way because the growth will not be broad-based and nowhere close to that seen before 2008. Meanwhile, fund managers are recommending a shift in investments from consumer stocks to industrial names, which are cheaply valued but also face the risk of being ‘value traps’.Notwithstanding the uncertainties, few seasoned investors want to pay heed to the last bit of musician Rogers’ advice of running away. They walked away with a portion of the gains in 2017 but did not want to sell lock stock and barrel. The fear of a financial market crash, as in 2008, is lingering in their minds but the reluctance to lose out on the remaining moneymaking opportunities in stocks is forcing them to stay put. 67334739 67334630 67333893

from Economic Times http://bit.ly/2CLobNh