On September 27,2008,seven months ago the Sensex was 13000 and I had put up a contrarion blog https://www.gauravblog.com/?tag=contrarion-investment-strategy
I had said the Sensex is moving towards a Distress Zone and will break below 10000 to provide a great opportunity to build wealth over the coming years…so one should bring in Fresh funds to top up their portfolios and not sell
Just a month later,on October 27,2009 the Sensex dropped below 8000,having begun the month at 13000 levels….from there,six months later on May 4,2009 it is kissing 12000,a rise of 50 % !
Yes of course,there was a problem end October 2008 with both,Cash and Conviction….. most were simply just too reluctant and resistant to add to their Eroded Equity Portfolios,lacking either one or both….but some who did,have reaped good returns…Their portfolios have recovered faster than those who just stayed put.
For example a portfolio that had eroded 50 % from Rs One crore to Rs 50 lakhs in 2008 by October 2008,infused fresh funds of Rs 25 lakhs…The portfolio would be currently, having crossed Rs One Crore, moving towards Rs 1.25 crs,thus recovering the full portfolio erosion…If this fresh infusion was not made the erosion would yet be 25% in the portfolio,whose value would have climbed but only to @ Rs 75 lakhs…In fact many scrips that had a brilliant 2007,like IFCI that touched Rs 130,have barely recovered from their 2008 crash…IFCI has moved just from Rs 16 to Rs 27…yet a far cry from Rs 130 !…making the recovery process that much more difficult…Unitech is another prime example…
However there is great Historic precedence in the Belief that Long Term Investors should never exits Shares of Core,Strong Growing Companies…..Reliance,Larsen,BHEL…..instead on significant declines like we witnessed in 2008,fresh funds should be infused to top up portfolios…the recovery is that much faster
As I end this Blog past 1 pm,the Sensex has crossed 12000 having surged 607 points and 5%,while the Nifty is just a shade below 3650
As I blogged last week….don’t short this market…you’re up against Momentum and Liquidity….However do blend Optimism with Caution at these levels….Our General Elections Results will be out on Saturday,May 16,2009……You get a Hung Parliament….Expect the Sensex to Hang too !
The Jury is yet out on whether this is merely a strong Bear Market Rally that may last a few months…Commodity Guru,Jim Rogers thinks so…..or it is the confirmation of a new Bull Market…Mark Mobius of Templeton,Abbey Cohen of Goldman Sachs and even Fidelity’s Head think so
There is an old saying…the Market will remain irrational longer than you can remain solvent !…so make the Trend your Friend when Trading…..don’t be tempted to short ,nor be tempted to enter at these levels…if you missed this surge,don’t worry…these are equity markets and they will give you opportunities in the future too !…Let’s now get the Elections and Earnings uncertainties out of the Way…Oh ! and we need some more clarity on the impact and Intensity of this Swine H1N1 Flu too !
They poetically say that ” Sell in May…and Go Away”….What I say is that assess your Risk Profile…and stay true to it under any market condition !…use these surges to reduce Equity Exposure,if you’ve sweated bad in 2008 and cannot bear to have seen such portfolio erosions
Buying a Protected Nifty Put would also not be a bad idea to protect your portfolio value and keep the upside open…Right Now the Prremium for the May 28,2009 Nifty Put of Strike Price of 3600 is Rs 151…So for each contract size of Rs 1.80 lakhs ,you will be paying just over 4% premium,Rs 7550…High, but worth it in such volatility and with election results coming up mid May….So for a Rs Ten lakh Portfolio,assuming Beta of 1,you’ll need to buy atleast Five contracts for a near total hedge….That will set you back near Rs 40000 as a premium for just one month,inclusive of Brokerage….A Hedge worth considering