It's been a great year for Indian equity markets. From despair to euphoria, the markets have bounced back and have managed to woo retail investors back. However, what goes up, especially if it goes up too fast, must come down. New Government and some developments on the policy front do support a rise in markets. But these are definitely not good enough to support the life time highs that markets have been touching. While markets have been too euphoric to take notice of such warning signs, with the start of the earnings season, some real sense seems to be kicking in. No wonder, markets are nervous and on a slippery note.
However, this we believe is a good time to revisit Warren Buffet's approach of investing - "Be fearful when others are greedy, and be greedy when others are fearful." Any correction at these levels will be a great opportunity to buy the stocks of good businesses at reasonable valuations. However, to benefit from that approach, investors need to shut the noises coming from all the quarters. And one of the best ways to do this is to adopt bottom up approach of investing. As such, the questions you should be asking should be about fundamentals and valuations and intrinsic values.
An important thing to remember that it is earnings of the company that will determine valuations and hence your returns in equity investments in the long run. But since predicting earnings is no easy task, a focus on creating safety levers and maintaining margin of safety will serve investors better. Once you choose a solid investing philosophy and have guts to stick to it, you can hope to earn good returns overtime without bothering too much about RBI policies, economic data and the deluge of information thrown by the business channels.
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