Brace for negative returns in 2018

Predicting stock markets is a futile exercise. You only need to compare historical predictions versus actual market movements to come to this conclusion. When bulge bracket investment banks and powerhouse economists with their multi-factor models of staggering complexity get them wrong more often than right, should the rest of us even bother trying to predict markets? No, we shouldn’t. At least not to time entries and exits. In preparing for battle, I have found that plans are useless, but planning is indispensable – Dwight Eisenhower Replace “plans” with forecasts, “planning” with forecasting, and “indispensable” with “mildly useful”, and that’s how

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Predicting stock market returns

At a glance While predicting market performance is nearly impossible, there are lessons to be learnt from looking at past performance We take the predictive power of three popular valuation metrics; Price-to-Earnings, Price-to-Book and Dividend Yield P/E as a valuation metric performs better than P/B and yield as a lead indicator of annual returns As of early Jan 2015, the Nifty is trading at 21.2x earnings, more expensive than 80% of all trading days in the last 16 years Higher the P/E at the time of purchase, lower the returns achieved for the Nifty Current P/E levels indicate marginally negative

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Developing a stock investment philosophy

At a glance Every investor needs a consistent basis for making all her stock investing decisions This basis allows the investor to stay the course in the face of short-term fluctuations Broadly two investment philosophies exist based on Fundamental Analysis and Technical Analysis TCI follows a value-stock investment style that looks for out of favour sectors at reasonable P/Es An investor should pick a style or philosophy that aligns with his temperament and proceed to refine it as he gathers more experience in stock investing In the last post (Election 2014 fever and deciding when to buy), I introduced Philip

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Election fever and deciding when to buy

In the fire hydrant post, I mentioned how every potential investor is inundated with a barrage of news / opinions / techniques to do his investing. It doesn’t help that financial news editors like using words like “surge” and “plunge” for routine market movements in their headlines. In addition, the investor has to contend with the enemy within – Mr. Market who exhorts him to jump in with both feet when markets rise and to dump everything when they drop. The Calm Investor doesn’t let the noise or his own biases stampede him into thinking of the stock market as a casino in Las

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