Trader's Paradise
I have a friend who uses his own method to invest. He selects financially sound companies that are also reasonably well known, either because they are large, like Reliance, or they belong to a sector that is currently doing well. He doesn’t touch unknown stocks. When the market declines substantially (by, say, 10% or so), he picks up small quantities of these stocks, holds them for a few days and the moment they rise by 10%-15%, he gets rid of them. I have not checked the outcome of this strategy, nor has he told me – assuming that it would not be a ‘method’ that I would approve of (I actually do think it is a good strategy to be applied to blue-chip stocks in a non-trending market). The other day, he casually mentioned out that he had a high percentage of success and was willing to show all his records if I wished to see them. The reason I mention this is because there is no better time than now for such a strategy – one that is based on playing the short swings. From now on, we will find the market going down one day and up two days and vice versa. Or they’d go down several days in a row and the world would seem to come to an end. This would be followed by a rally which would fade.

Talking of a rally, one should be due now. The cascading fall over the past few weeks should pause and a weak uptrend will begin. The market cannot stay still, especially at a volatile time like this and so the pulls and pressures between bulls and bears will ensure up and down moves. I mentioned in the previous issue that after a huge decline since the middle of May, it is time for the market to stage a small rally. I also wrote that this would be a short-term scenario, clarifying that the coming bounce, like the previous ones, will not last. It seemed to me that “the medium-term trend has clearly turned downward and we should get another steep move down soon.”

The Sensex rallied from the close of 15,189 on 13th June, when my last piece was written, to 15,696 on 17th June. However, this move fizzled out and a steep decline began, all the way down to an intra-day 13,731 on 25th June, taking support at the previous bottom of 13,779 made on 17th August 2007 at the height of the subprime crisis. (By the way, the low of Dow Jones Industrial Average around that time was 12,518. The Dow was 11,453 at the time of writing this piece. The Sensex has clearly done better than the Dow through the entire crisis). Let me end with a glimmer of hope. One of the best fund managers of the past few decades is value investor Jean-Marie Eveillard who runs the First Eagle Overseas Fund. A report on www.marketwatch.com states that he believes this to be the worst financial crisis since the Great Depression and that markets will inflict more pain before the adjustment process is complete. So where is he putting his money? He has bought lots of Japanese stocks. More important for us, he is looking at other countries in Asia, especially India. As the report puts it, “Later this summer, Eveillard will hear from one of the fund’s analysts about potential investments in India.”

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