Investonomics-ManFina-Series 5

The story of four great bottoms in Equity markets---3 little monkeys!!!!(1929,1980,2000 & 2008) 

At the outset of 2012, an already much hyped year for various reasons, I would like to start the note with the above mentioned rhymes. These rhymes have been taught to us so that we may not repeat the mistakes again n again but its human nature to do the same.

Obviously our scholars have mentioned “To err is to human, to forgive is to divine” we may argue. Unfortunately, these 3 little monkeys have been with us in different phases of life and yes, even in stock markets. I would like to highlight to my readers who invest in Equity markets to make a note of these 3 little monkeys who jumps on their bed and when they fall down, they break their Owners head.

With my studies I have found these 3 common factors which were the primary indicators or precursor to the major falls in markets.
a. Auto sales declining continuously for 3 quarters
b. Copper prices declining continuously
c. Govt. Borrowing rates going up

So next time when you find all these 3 things happen simultaneously be the first one to get out of Stock/Commodity markets. At least we will be sure of not loosing money, to make money in such a difficult time is a different question altogether.
Although if you don’t track your investments because of lack of time, hire a Financial advisor who can do this for you. As earlier mentioned in my last blog, we are still not seeing recovery in commodities, especially copper, so I would like to caution my readers that till the time we don’t see any sustained recovery in Copper, avoid meaningful investments in Equities.

I will be highlighting some important Cycles (Waves) which we have gathered from History of stock markets, which will help the readers to enrich their knowledge and take wise decision. Out of all Cycles/Trends/Waves I will first highlight “The Most powerful Decennial Cycle”, a cycle/wave/trends which markets have been following since 1900. Fig. below by Ned Davis shows the average gains in the stock markets(DOW) over the last century.

The markets tend to peak late in ninth year, correct into middle part of second year, and then recoup modestly into the end of the fourth year. Most or all of the net gains then tend to occur in second half of the decade. By getting defensive in first 2.5 years of every decade, investors could have create greater risk/return benefits, so we can say that we need to be more defensive till mid 2012. The greatest stock crashes other than 1973-74 have occurred in early years of the decades: late 1919 to early 1922; late 1929 to mid 1932, late 1937 to early 1942; 1960-1962; 1970; 1980-1982; 1990 and early 2000 to late 2002.Similarly the greatest bubbles have occurred in the second half of the decade: 1914-1919; 1925-1929;1985-1989;1995 to early 2000; and 2005-2009.