A quote attributed to Peter Lynch is "If you spend 14 minutes on Economics, you have wasted 12 minutes of it " For us lay investors this is even more relevant.
Some of us Valuepickr members were fortunate to attend Howard Marks lecture at Mumbai when he was there for the launch of his book, a few years back. He talked at length about various things, and his favourite topic, Risk. But the thing that appealed to me most was an anecdote that he narrated.
It goes like this… One day his son came to him very excited, and said, Dad, you have to buy shares of this auto company. It’s latest model of car launched is selling like hot cakes and the sales numbers reported in the financial newspapers and magazines are mind blowing. So Howard Marks asks him only one question… " Who doesn’t know this fact?"
The current global factors is almost similar to above anecdote. High crude prices, Strong dollar, high US bond yields, any other indicators you name it, are making the headlines. Who doesn’t know about this? Inspite of all this if small and midcaps are rallying then there is something really going for them. Obviously there is some element of froth, and we need to be cautious about getting carried away in companies rallying hard where we do not know much about their fundamentals. But wherever prospects are bright, and wherever there is sectoral fancy, the rallies can go much beyond our expectations.
At some point of time, even small cap, and midcaps also might correct. We cannot live in constant fear of the sky falling on our heads. We have to go out of our house and do our job and work. Similar is the situation with markets. If we have a constant fear of markets crashing then it’s better to sell stuff and sit on cash . Other option is to ride the rally to the maximum with well defined mental stop loss levels. And maintain discipline.
Beauty of the current rally in small and midcaps is that even after such a big strong run up there is a lot of skepticism and disbelief. This is usually a good underlying factor for continuation of the rally. Personally I remain a cautious bull, currently fully invested and enjoying the current ride.
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