The stock market witnessed a sell-off on Friday with the BSE Sensex closing below the 10000 point level for the first time since July 24, 2006. It took 484 sessions for the Sensex to climb from 10000 to its all-time high of 21207. However, in just 191 sessions all the gains of the last 2 years were erased.
What can be expected going forward? Is there any respite in sight? During times like these, it helps to look back at previous bear-markets. As they say, those who don't learn from history are destined to repeat it.
Analysis of previous bear-markets suggests that bear-markets take a minimum of 12-18 months to complete. Measured from January 2008, we are just in the 10th month. So, it will be atleast 6 months before stocks start recovering. I guess the price-wise damage is nearing an end. Historically markets bottom-out at 9-10 forward PE multiples. Considering 2009 March Sensex EPS estimate of 900-950, we are near the bottom.
Investors(both old and new) should use the next 6-9 months to build a portfolio of stocks which they should be prepared to hold for 2 years at least. This strategy is sure to yield returns in the long-run.
No comments:
Post a Comment