My Best Pick 2013

Why optimism pays

Don’t get too negative as history shows significant returns can be generated at lower P/E multiples

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The Samvat year gone by was one with positive performance in nearly all asset classes. But it was also a year of confusion and challenges and a year of fear. Still, both the global and Indian equity markets have bounced back quite smartly, especially in the past couple of months. What should we expect now? More importantly, if long-term wealth creation is your goal, what should you focus on?

Economists coin new terms and phrases every day and, thanks to the media and internet, all of us get to know these terms. Remember the catch phrases of 2012? Fiscal cliff, long term refinancing operations, quantitative easing (third round), policy paralysis… All these created confusion and apprehension and did their best to make investors stay away from equity markets. But most of these concerns added only noise to the market; at best, they had a short-lived impact. Those equity investors who took a more rational approach and a medium-term view saw good opportunities in every correction and made good returns. Ultimately, each of these terms were forgotten, as will the ones that will be coined in the future. 

It was much the same with negative questions. What if oil crosses $150 a barrel? What if Israel attacks Iran because of nuclear warheads? Who will win presidential elections, in India and in the US? What if no money is printed through LTRO and QE3? Investors who remained overly worried missed out each and every time on the subsequent rally — they failed to realise that the market was already pricing in all known negatives. 

So, the lesson is to ask more positive questions. For instance, how many investors are currently mulling over the market response if a solid agreement on the US’ “fiscal cliff” is reached? Or, what is the upside potential if the recently-announced policy measures by the Indian gov

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