Cowards’ portfolio: The best time to ride the bull wagon
Mark Mobius reveals two emerging trends that help you discipline and continue adding funds in dire crisis!
The last time I was writing a speakers’ corner, the Karachi Stock Exchange (KSE) was jumpy, mainly due to the fact that the imported cleric Tahirul Qadri had taken the streets of the Islamabad for his encore.
Coincidentally, when I am writing this piece the market is turbulent, but due to very different reasons. The stock has lost some 1,800 points since peaking at 22,757 two weeks ago, but that was expected as despite stocks being available at a bargain, the market was overbought.
Last year, Pakistan’s largest stock market outperformed all major indices across the globe, so you need not worry.
After conducting some historical market studies, Mark Mobius, the market guru who invests in Pakistani equities, surprisingly found two important emerging trends. Historically, bull markets have gone up more, in percentage terms than bear markets have gone down, and bull markets have lasted longer than bear markets. So, if your rupee cost average, meaning that you systematically invest the same amount each month or each quarter over a number of years, you would have found that over the long-term you were in a bull market more than you were in a bear market.
Thus, if you have the discipline to continue adding funds during those bear market cycles, that same amount of money would have bought you more stocks.
I understand that it is psychologically a very tough thing to do as people around you give you free advice on what you should do. If you succumb, then you fall for ‘herding’, a simple term to behavioural economics.
And if the newspapers are reporting how dire the KSE is and how it will get worse, you can also become subject to what is called the ‘whipsaw effect’; buying and selling at the wrong times.
This is what happened in the US market during the subprime crisis in 2008 when the market sunk to its bottom and many investors sold their positions. However, when it rose 50 per cent, people thought they were missing the boat and got in. But, the market had already peaked so they bought at the top — a stupid move.
Thus, without a long-term view, you are bound to lose the game. Either you can hold positions and wait for the tides to smooth out or wait for my speakers’ corner as I have a knack of writing one when the KSE is in turmoil! So the time to ride the bull-wagon is now!
Read more by Raheel here