“I told you so” – Well this is what I have been avoiding saying
during conversation with people around me. Anyway, I was always bearish in my
previous projections from last 2 years. I still hold my views that there is no
point investing in the market at a PE higher than 20. COVID is not a reason but
just a trigger for correction, which was long pending in the stock market.
Public equity was priced way above the reasonable levels.
There is a bit of misinformation being spread among retail
investors around the definition of PE. The only PE which is accurate is trailing
PE. Forward PE may be meaningful but the calculations are all in thin air.
Retail investors should avoid falling into such traps.
A passive investor cant do stock selection with confidence
and moreover for retail investors, this needs a bit of expertise. For such
investors a good parameter for investment is as under
(*Source - https://www.equityfriend.com/investment-charts/nifty-pe-chart-nifty-pb-chart-nifty-dividend-yield-chart.html)
Again the big question is – Is it the right time to
invest?
The answer to this question depends on the level of
expertise of an investor.
A.
If someone has already decided to invest and
have reasonable confidence in evaluation of a sector or a company, then at PE
of 20, one may go ahead and invest.
B.
If someone is pure retail investor, then this is
not the right to invest. The market is just touching at PE of 20 and the PE is
still very high for a passive value investor. For such investor, it is better
to wait for PE of at least 18 to jump in the market.
Confidence is the key and history is the answer to all the
questions and it is better to evaluate the past performance of the market on
monthly basis.
Key lessons to be learned from COVID event are as
under
1.
Markets can’t stay stupid for long
2.
The time duration for correction of market may
be longer at times
3.
Don’t invest till PE drops below 20
4.
Don’t try to time the market
5.
Don’t search for peaks and bottoms
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