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Thursday, October 27, 2011

Why You Will Get High Returns during Recession?

The year that was has been stupendously bad for the equity markets,the real estate market,general business,European governments....well the list goes on.

Recent Vanguard research finds that since 1926, the average real returns of a hypothetical portfolio evenly balanced between stocks and bonds have been statistically equivalent regardless of whether the U.S. economy was growing or in recession.
"The calculations are complex, but the underlying rationale is rather straightforward," said Vanguard's chief economist, Joe Davis.

Just goes on to show that sometimes the 'herd mentality" approach doesnt work.In my 15years in the financial markets i have rarely found an investor who ever sat across my desk and wanted to invest when times were bad as they are now!

I have always been a strong advocate of investing regularly be it through SIPs or at frequent intervals and not shaking when you see your investments down 10-20%.What you should worry about are the fundamentals of the stock,the sector performance,management history and the sustainability of the business.

Rarely do I look at the PE ratio(i leave that to the real analysts),I would rather depend on PEG(relative to growth) and on the macro factors

 From the "Roaring Twenties" through the "Great Recession," a hypothetical portfolio with a 50/50 stock/bond balance was, on average, likely to enjoy remarkably similar real returns regardless of prevailing economic conditions:
Average annualized returns for a 50% stock/50% bond portfolio

My advice and I reiterate is to invest especially in the Indian equity markets where a 7-8% GDP growth and annnualized 12-14% corporate PAT growth for the decade can be expected unless Al Qaida lays its hands on a nuke,Mt Vesuvius explodes,remaining middle eastern potentates implode...

Those having the risk appetite should invest in quality midcaps that offer an upside potential of almost 50-70% per annum.Interested?