Change in Direction

Market focus is not changing direction. We have seen in the last 18 months that small and mid-caps have been hugely profitable ideas. Returns have surpassed expectations.

When the going is great, investors don’t want to take out resources. They want to be part of the trend. Valuations at such extreme levels don’t seem to be stopping the demand. Trends change when it is the least expected.

Change happens quickly. All it takes is a trigger. The trigger could be anything. It could be a change in policy, a change in global flows, or liquidity drying up in the system. We seem to be heading to a point where the change could be triggered suddenly.

Investors should closely look for such triggers in macro forecasts, industry commentaries, and investment flows. Investors must move their money gradually to safety when a trend becomes too good to be true. It is the responsibility of the investor to ensure that the break-in trend does not break his portfolio.