01-Jul-2005

>Bulls & Bears (historical view)

For at least the last 100 years, 15-to-20-year bull markets have alternated with 15-to-20-year bear markets.

From 1980 to 1992-1994 we had a super bull market.
Since the 1992-1994 4000 top in sensex till 2003 our market went no where and kept range bound.

BSE was at 4000 in 1994 and was at 3000 in 2003. (approx)

Inflation is a major problem we have..
While we may think that sensex at 7000 is much higher than its 4000 peak made in 1992.. its not when we accomodate the effect of inflation...!!

(2003 or 2005 -1994 or 1992 = 12 years approx)

4000* 1.02^12 = 5070 (assuming 2 % inflation over the 12 year period)
4000* 1.03^12 = 5700 (assuming 3 % inflation over the 12 year period)
4000* 1.04^12 = 6400 (assuming 4 % inflation over the 12 year period)
4000* 1.05^12 = 7200 (assuming 5 % inflation over the 12 year period)
4000* 1.06^12 = 8050 (assuming 6 % inflation over the 12 year period)
4000* 1.07^12 = 9000 (assuming 7 % inflation over the 12 year period)

If we take the case that we had seen 5% annual inflation during the past 12 years, this means that sensex at 7200 in 2005 is no better than sensex at 4000 in 1992. ..!!


So thats a bad things..
Plus we got to pay taxes on capital gains.

The 5% inflation adjusted value of Sensex at 3000 in may 2003 was (3000/1.05^12) = 1670..!!
Compare 1670 with 4000 in 1992-94.. thus we see that stock market can act as big-wealth destroyers for long periods of time..!!

But the good news..

The mad bull from 1980 to 1992-94 laid the foundation for the go-nowhere and inflation eat into your investment kind of bear from 1992-4 to 2003....

A bull run of 12 years or so... created a bear run of 12 years or so... which will in turn create a ...........??

Now the coming or ongoing bull run cannot be timed to perfection..
But we know that high tide is going to come..
So for long term investors the cool thing to do, is to jump in the boat of good companies and wait ..!!

in-joy.


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