I believe it’s time to be more cautious. The easy money has been made. The low-hanging fruits are now rare. We can’t take comfort from past winners.
It’s been a great year for the bulls. No doubt about it. They haven’t faced a serious correction since March 2020. In fact, people will sell eventually and for many reasons. For my friend, it was his vacation. For someone else, it might be a marriage, buying a car, home improvements, or anything else.
The point is new money will have to keep coming in to keep the rally going. Stock prices can’t always go higher. They have to fall significantly at some point. At that time, if there aren’t new buyers coming in, the crash would be severe.
What about 2022? Do we have any specific strategy in mind for the next year? As you’d be aware, my investment strategy says always prepare and not predict. Thus, as far as preparations are concerned, we are preparing for a more difficult 2022 as compared to 2021 or even 2020 for that matter.
Historically, whenever the markets have gone up more than 2x in one direction, a correction of 20% or more has usually followed. And there’s no reason why this time it could be different.
Valuations wise also, the markets are not attractive anymore. The PE ratio of the Sensex is somewhere in the 90th percentile. This means the Sensex has been this expensive or more, only 10% of the time. It has been cheaper than the current valuations almost 90% of the time.
I don’t see the need to drastically alter portfolio allocation (Individual bases) unless there’s a significant correction in the market.
BRACE YOURSELF