America is sneezing

Time to watch your investments carefully

Srinagar, Publish Date: Oct 16 2018 11:36PM | Updated Date: Oct 16 2018 11:36PM
America is sneezingRepresentational Pic

Global markets stand exposed to a 'new source of risk' as relations between Saudi Arabia and the US have deteriorated after a Washington Post journalist, Jamal Khashoggi, who resided in the US, disappeared after visiting the Saudi consulate in Istanbul. Immediately, there could be a fallout for global oil markets as it's believed that "any Saudi retaliation will presumably mainly come through reduced oil supply and higher prices."

Notably, the stock market in Saudi Arabia has already plunged and "oil could be the next to be affected."

It's pertinent to mention that the U.S. President Donald Trump warned Saudi Arabia of "severe punishment" if it turned out that Khashoggi was killed in the consulate. The warning is an imminent threat to the world peace order.

Let me not get into the serious political dimensions of the confrontation as we have global political experts and analysts to measure the fallout of the confrontation between the kingdom of Saudi Arabia and the US. Let's analyze its fallout on the financial markets.

The impact of developments taking place in America is summed up in a famous phrase. The phrase,  when America sneezes, rest of the world catches the cold, originated back in 1929 in the aftermath of the Wall Street crash. This sneezing has always shaken the money markets across the globe.

In the context of our local (Indian) markets, the developments taking place  around the disappearance of Jamal Khashoggi having huge costs is not going to spare investment scenario. The situation is more worrisome as the financial markets have been behaving abnormally for quite some time now. A few weeks back, market went through some scary moments when the Sensex crashed over 1,000 points in a span of just a few minutes, but recouped more than 700 points immediately thereafter.

In view of the given global political situation and the local uncertainty in the economic scenario where the rupee has been falling from grace against the US dollar and unprecedented rise in fuel prices has hit common man's domestic budget, the investors are in a dilemma. Are we heading towards a major economic crisis? Is it time to buy, sell or hold the stocks? These are a few questions which some readers have asked. Precisely, most of the local investors are looking for a crystal-ball synopsis about where the stock market is headed in the present scenario. Some have even asked about “great stock tips I know that can help them to make money even when market crashes.

Even as I do have plenty of informed opinions, at the end of the day they are just opinions. And is no surety to get stellar results. The reasons are simple. Firstly, investing in the financial markets involves buying and selling and to make a profit one has to get both decisions precisely right. Secondly, to buy and sell the stock successfully one must be able to monitor and interpret countless pieces of information that can change in a heartbeat. And, thirdly, when the market has its ups and downs, emotions can easily cloud ones judgment.

First identify whether you are an investor or a trader. These are two different things. Your financial planning and how you manage your money is dependent on this factor to a great extent.

An investor holds the stock for long term predicting that the company in which he has invested will have a strong growth in the future. As an investor you should consider whether a company's shares represent a good value. You should also measure the company's future success by looking at its financial strength. So value and success are the two basic things out of which you as an investor can derive the future growth of the company in which you have invested.

A trader always buys or sells a stock based on price patterns – you look at past price history in an attempt to predict future price movements. A trader keeps close watch on his trades intraday to see where money is moving and why (supply and demand). And, of course, traders look into the market emotion. The traders play on the fears of investors where they will bet against the crowd after a large move takes place.

Meanwhile, in the present circumstances, when America has started sneezing and local environment too is not favourable, decision whether to buy, sell or hold the stocks should not be driven by where the market will go, it should be driven by asset allocation. I mean, the investor should have a diversified investment portfolio. So the asset allocation should be like investing in equities of various companies in different sectors, real estate, commodities etc.


(The views are of the author and not that of the institution he works for)


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