Winter Is Coming

3 сент. 2021 г.

Let me start with small story. In the town, new cake shop opened and he kept the price as Rs. 20 / cake. Now, everyone realised that the price is too cheap, so on a daily basis he received orders of more than 200 cakes, whereas his production capacity was just 100.

After few days, he increased price to Rs.30, still he used to receive order of more than 150 cakes every day.

Now, after few days he again increased price to Rs. 45 / cake. Now, everyone started realizing that it is not cheap anymore and demand dropped. He started receiving order of 70/80 cakes every day. So, he finally changed price to Rs. 40 / cake, at which point he started receiving order as per his production capacity.

Now, every year he used to increase price by Rs. 1 to adjust the inflation cost, which everyone in the town felt is fair enough. This continued for 8-10 years.
After sometime he went into renovation for few months. So, everyone started missing his cakes. When he opened shop, again, there was huge demand and again increase in the price and finally a correction.

This is what happens in share market, as we can see in the chart, whenever, market is trading near upper band for too long. A big correction comes until such time the price of the shares become fair. The speed at which it goes up is correlated with the speed at which it comes down.

In the last 1.5 years, market has already gone up ~131% and the trajectory at which it is trading and the speed at which it is going up, we will reach 50k by Nov 2026. Now, 50k is the target provided by our so called economic pundits by 2030 and we all know even though economy is booming and India will soon become 5Trillion dollar economy, we are not going to touch 50k by 2026.

Now, why we are seeing such surge in the prices and change in trajectory as compared to past.

Main Reason Lockdown -

Because of lockdown employees started working from home and naturally, they started getting free time and at the luxury of working from home and without any IT supervision they started learning and investing.

Because many businesses were shut, shops were closed and market started coming up so with the little amount people had saved, they started investing in share market.

Because of increase in gold price – when there is instability in economy people start buying gold but when gold reached all time high of 56k and market was giving good returns, everyone started selling gold and that investment again shifted to share market.

What’s next?

Since, market is trading near upper band (Red line) for too long. I believe ASA market will touch point, where this black and red line will interact, we will see correction of at least 15-20 % until it touches green line and starts trading in band. In this correction, the stocks which have rallied most i.e. small and midcap will see almost 40 to 50% correction.

Now, in this rally market has already given free lunch, dinner and breakfast to everyone. Now, if you don’t want to pay for this free food already consumed. Stay away from the stocks which are trading at all time high or have given 200-400% returns in the last year. Don't run behind these multibagger stocks.

Switch to the old method of adding stocks in your portfolio, which are fundamentally good and stable. Protect the money that you have earned or else you will end up paying more.