The Victory Dance
The headline of a prominent Indian financial daily (25th September) read “SENSEX-AGENARIAN- Rocking at 60,000”. 2 micro headlines in that same post were “Sensex Valuation Lower than at 50,000” and “Most Nifty Stocks in Bullish territory.”
It’s ironic because the start of the week was all about Evergrande fears and all things (that could go wrong) such as FED Taper Talks, US Debt Ceiling, Crackdown in China and the geopolitical risks.
How should an observer of such bearish and bullish news be reacting?
What was your reaction to this?
If you have been a regular reader of this blog, you would certainly know my reaction to such news.
“I would not waste my energy on any such news whether positive or negative. I know why I am investing. I know my goals. I know what I can control and what I cannot. I know how to behave in bad markets and in mad markets. I know my personal economy and most importantly I know not to interrupt compounding.”
What is this headline “The Victory Dance” then? The headline does not correlate to the sentences I have written so far but soon I hope it should 🙂 .
How many investors do you think did a victory dance because the Sensex hit 60000?
I do not think anyone I know did. I did not. It does not matter. It’s just another number.
How many traders do you think did a victory dance because the Sensex hit 60000?
Many did. I caught up with a few to validate my assumption.
I am not surprised that traders did a Victory Dance.
If you were observing the stock markets in 2006 and 2007, there was a victory dance (celebration) by traders after every 1000 point up move (which would mean that Sensex was up by 5-9%). A 1000 point move on the Sensex today is a 1.5-2% move.
The point that I am making here is that traders are playing a very different game than all of us.
A Trader will think about – How much did I make today or how much did I lose today? What do I need to do to make money tomorrow or to cover my losses of the day?
For us investors, this is just another day. We don’t think much about it. We seriously do not.
The key for any investor then is to realize the difference between an investor and a trader and the difference between investing and speculation.
Wise investors understand the difference. Not understanding the difference is the root cause of many investing mistakes.
The surprising part was seeing this media outlet doing a turnaround with their bullish tunes.
A victory dance was embedded in some musical lines and yet another headline “60K & It’s Getting Better All the Time. For many, the 60s will always be about the Beatles and the magic of their music. Sensex @60K also feels magical. An ode to the growing equity cult. And it is getting better all the time for India Inc. and the county, looking to bounce back from the pandemic lows and to fire up the growth engine.”
So, what should a reader of such news be doing?
Start investing immediately when the news is bullish and then sell immediately if the stock market starts to go south when the news is bearish.
Can you imagine an investment strategy based on such news and events?
The same financial media that was harping on Evergrande and all the problems in this world suddenly writes these gems:
a. A silver lining for the market is that the valuation of the Sensex at 60,000 is cheaper than what it was at 50,000.
b. A long-term trend indicator shows the majority of India’s blue chips are in a bullish zone.
Wow. What an amazing discovery in point b.
When I read what the indicator was, it was the 200 Day Moving Average (I won’t bore you with the technical details here). In short, the news read “Above 88% of Nifty stocks are trading above the 200-day moving average, a sign which highlights the strength of the market.”
What is the definition of long term? A 200 day Moving Average is an indicator used by traders to get a sense of the stock market trend. The reality is that even market commentators do not understand the difference between traders and investors.
When the stock market is up, the media starts calling all the bullish fellows for interviews and comments. When the stock market goes down, bears are called for their views. In fact, a species called “Perma Bear” is always ready to dole out negative news. Even on the media’s most bullish days, one or 2 bears are called on to caution and save the world.
I kept the best headline for the last.
It read “Head and Shoulders Above the Rest.” The Drop Head or Deck (a headline below the main headline) read as “From the meltdown of March 2020, when the country went into lockdown to contain the Covid outbreak, the Indian Stock market has rallied like no other. The NSE Nifty and BSE Sensex have gained 134% and 131 % respectively since March 23rd ,2020. Among the major world indices, the Nasdaq is next with a rise of 119% in 18 months. Last week, India pipped France to become the sixth biggest equity market globally by market capitalization.”
Well, what did you truly have to do to capture this up move?
The answer is simple but not easy.
- Ignore the noise created by the 24 *7 news cycle.
- Fasten your seat belts and ride out the volatility of the markets (15%+ in any typical year, 30%+ or so every 3 + years and 50%+ once in every 7-10 years).
- If you cannot do the above, have a conversation with a real financial professional.
Finally, what about our victory dance?
Our victory dance lies in letting compounding do its job for us and in the process helping us live the lives we have imagined with our money.