Only someone were spent enough time in the market and has been an independent investor might probably have the spirit to say that you need to decide the right time to get invested in the market. Most answers to this question are going to be standard or substandard, like asking you to invest for the long term or by right and sit tight but ignoring the idea that bear markets can be brutal and the point of starting thus make the big difference in your long term rate of return. Yes there have been certain sectors that point of time in history that did well even while bear markets were in force. For example the tech sector from 1994 to 2000 was booming quietly in the 1st few years even as the rest of the market in cyclicals and Midcaps was getting wiped out. Such a scenario however is not always on top of the mind.

Now even if you are in a normal cycle degree bear market holding onto blue chips through the bear or stepping into them as has been historically proven and sold by mutual funds would have sounded like the good investment idea. But my thesis coming from years of research into economic cycles gives a very different perspective. For the last many years I have published work at http://indiacharts.com  covering India’s economic winter cycle. This winter cycle is part of the 4 seasons of the Kondratieff cycle that involves the growth and expansion of an economy from birth to the point where excessive consumption and/or leverage result in the unwinding of credit in a price deflation or inflationary reset. This event is once in a generation event and therefore no one living has witnessed it today to be able to use it as the goalpost or benchmark and build a strategy around it. Most will discard the theory that was put together by Russian economist almost a century ago. But it is continue to live through technical books and the work of a few. So have taken upon it to apply the cycle to the Indian economy and concluded several years ago that an economic winter would follow. This has already proven true in an economic sense with rising NPAs and the collapse of NBFCs in the last couple of years. The eventual result has been a complete drawdown in credit growth that even the RBI has failed to kick start with its policy responses.

Now we are in the final phase of this chapter where the weakness in the macroeconomic picture finally takes hold in the equity bond real estate and commodity markets causing asset prices to deflate to the point where significant government or central bank intervention would be needed. In light of this long-term investors have a lot to lose in the months and weeks ahead and would only look for bear market rallies to get a better price for the stocks that they continue to hold. If you still feel the need to avoid an exit then learn to diversify with alternative assets that often do a good task of hedging your portfolio like owning gold or US dollars relative to your equity exposure.

The short answer is that you will need to wait for the right time to start an entry when blood is truly a on the Street and nobody wants anything to do with mutual funds or equity investments around you. It might not be hard to spot that extreme and pessimism, the hard part is likely to be the patience that you need to get their. The hard part is also learning about alternate ways to diversify risk or hedge one’s portfolio. The hardest of course is to consider an exit on the next move higher and the re-entry only sometime in the future when all hope appears lost. As simple as it sounds taking a contrarian stance is what most people find emotionally difficult to. Success in the markets goes beyond the scientific understanding of fundamentals and technicals to overcoming these emotional tendencies that keep you from taking the right decisions at the right time.

The Truth About the Markets

Rohit Srivastava,

Founder Indiacharts