Bond Speak - Next Level Education
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Bond Speak

Bond Speak

 
Sunil Jhaveri aka Mister Bond
Markets in uncharted territory. Most market participants feel that Equity markets are ahead of the Fundamentals & running more on the fuel of Liquidity.
It is always confusing as to how to advice your investors.
My simple mantra is to “Keep It Simple & Uncomplicated” with some in built profit booking strategies.
Asset Allocation is the right approach at all times but particularly at such times it  is the best strategy. This is because asset allocation is extremely good to counter “Greed & Fear” biases of Investors.
Sensitise investors to market signals even before on- boarding them to the investment process.
So if we become a little realistic & not get carried away by the emotions & biases of our Investors; we will be able to guide them better on their Wealth Creation exercise. With this premise, let me share two data points for you to consider:

Market Signals:

Instead of getting carried away with market euphoria & market despondency, if we sensitise our Investors to the following market signals (even before on boarding them into Investment Process); not only will we able to manage their emotions better but help them in right way of thinking & investing.

What are these market signals?

Red Zone is the most expensive zone, Yellow Zone is Reasonable Valuation Zone & Green Zone is the least Expensive Zone. Ideally, Investors should invest maximum in Green Zone, less in Yellow Zone & maybe exit in the Red Zone.

However, shockingly, only 1% of Investors have invested in the Green Zone & 80% of Investors have invested in the Red Zone.

Naturally their experience of investing in Equity as an asset class has rarely been good. Following is the data of investments in NIFTY/Sensex in different zones from 2000 to 2017 & if held for 5 years from the point of their investments:

As can be seen from above, it simply does not make sense of investing in the Red Zone.

Since, we are aware of this as an irrational behaviour of the investors; why don’t we guide them on the right path by doing just the reverse of what they have been doing so far i.e. Disinvest in the Red Zone & Invest in the Green Zone?

 This is easier said than done as we all as Advisors know.

Then what is the solution?

Solution is adopting Asset Allocation strategy in their portfolios for Equity Investments.

This can either happen by adopting some Algorithm (Calculator) like that of MisterBond which will guide the Advisors on re balancing between debt & equity at regular intervals like monthly or quarterly or invest in some re balancing schemes which re balance between debt & equity based on market fundamentals like PE, PB, Dividend Yield or a combination of any two or three of these parameters.

These will work around Investor Behavior & Irrational Investment patterns by BUYING LOW & SELLING HIGH with constant profit booking in built strategy.

This article will be followed up by another on importance of asset allocation strategy and MisterBond’s Algo to hemp Advisors follow this strategy

 

7 Comments
  • Sanjay Kulkarni
    Posted at 10:08h, 09 August Reply

    Very important guidance at this stage of market.

  • Nandakumar
    Posted at 13:37h, 09 August Reply

    Informative article would love to enhance my knowledge with such inputs
    G8 keep going

  • P. Patra
    Posted at 14:02h, 09 August Reply

    Very helpful guidance.

  • Rajesh Gupta
    Posted at 16:05h, 09 August Reply

    Kindly guide us the funds which are buying shares with low PE and PB

  • Anurag S Dodmani
    Posted at 17:28h, 09 August Reply

    Thank you so much for such an important,helpful & urgently required guidance

  • I v Ramakrishna
    Posted at 01:51h, 10 August Reply

    It is really practical theory, which we often slip in the journey-very good brush up-

  • Pankaj Gadkari
    Posted at 19:25h, 13 August Reply

    Would like to have regular views on market and Asset Allocations

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