Investor perception often gives unmistakable hints of things to come. When most investors believe a particular asset class or investment simply do no wrong, it actually would go wrong. Consensus is often the worst tool to make decisions. This is because it takes too much time to reach a consensus and by the time it is reached, it simply would be too late. Let us now evaluate the present investor perception. The consensus view on investing can be summed up like this – investors think there can be no better time to buy home assets; they feel anytime is a good time to buy gold; on equity, investors are still to get over the bad memories of 2008. In fact, investors aren’t even ready to think of equities. When investors don’t even want to rationalize the merits of equity investing, they will be passing over a great opportunity. This makes us believe that equity maybe headed for much better times in 2013. As for the investor favorites – homes and gold, one is treading on thin ice. The risk – reward equation looks loaded against the investors.
Investment aversion and objectivity are mutually exclusive.
Market turnarounds have a way of surprising you. First, it will appear that everything is wrong with the world of money. The economy will look hopeless. Your currency will look weak. Inflation will be uncontrollable. Interest rates will be close to their highs. Crude prices will be peaking. Headlines will be bleak. No news will be good news. The markets will look like crashing any moment. Then, suddenly, one of the variables will change dramatically. This leads to a chain of events where the other variables start to look up. Gradually, the fear element will leave each domain which it occupied. Crude, commodities, currency, inflation, interest rates and economic data will all sequentially look up. Suddenly, the headlines will change. The stock indices will look up. Money will keep coming into the markets fueling a sequence of positive events. By the time you realize it, the stock markets would have risen significantly. We have described this in a racy way. But, the events have their own way of playing out. One thing is true, every bull market is born out of an extremely pessimistic state. This one will be no different.
Hoard stocks. Unhoard capital from other assets.