“Alice: Would you tell me, please, which way I ought to go from here?
The Cheshire Cat: That depends a good deal on where you want to get to.
Alice: I don’t much care where.
The Cheshire Cat: Then it doesn’t much matter which way you go.
Alice: …So long as I get somewhere.
The Cheshire Cat: Oh, you’re sure to do that, if only you walk long enough.” – Lewis Carrol, Alice in Wonderland
Every time the stock markets react, I’m reminded of the above dialogue. Firstly, many who look upon stock market as source of wealth creation have not decided their financial goals. Secondly it is important to sit back and understand the event that lead to fall or even rise, instead of reacting. Let’s look at each of the above points further deep.
Achieving a financial goal means deciding with clear time and resource target. Financial planning is the most talked jargon but little understood. In simple words, one should have clarity of how much wealth is required to live and monetary and non-monetary goals in life. There are few financial planners in Mumbai /India who can guide you about it. Once the goal and resources are known, the direction becomes clear.
Secondly one has to look at an event in all aspects. One should understand whether the event is economic, political, regulatory, sudden or gradual, domestic or global etc. The event of rise in US fed rates was the immediate trigger for the market reaction globally. This event was anticipated and discussed globally. It would impact foreign direct investments in India, bond markets, currency movement adversely and influence interest rates. Companies with higher foreign currency exposure could see their earnings being affected. The positive side would be higher exports with growth of US economy, higher growth locally and consequent rise in demand. As the study of various factor may not be possible for lay investor, the basic question to answer is whether demand growth of Indian economy will continue and its pace and the answer is yes.
Now, if you are investing in mutual funds with long term horizon the event has no impact if one follows the strategy of regular investments. Active investor in stock market with focus on long term investment should look at the event in terms of its impact on the growth of companies one plans to invest. Lastly, there are a set of investors who feel that they have missed the bus and want to invest in markets but do not have clear financial goal or have short-term view. For such investors, as quoted in the above story of Alice in wonderland it won’t matter much if one invests or not.
His interests include birding & adventure activities.