2009 Road Ahead

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: After a year of battering and tremendous wealth erosion, experts don’t think that the situation is going to improve in a hurry. Almost all investments avenues, barring gold, gilt-edged funds and a few hybrid funds, have tanked big time. Looking ahead, the clouds of recession are threatening to keep matters subdued in 2009 too.

However, it is in times like this that most of the bargains, which become a part of urban legends, are available. More than a quarter of the BSE 500 companies are quoting below their book value. The market capitalisation-to-GDP ratio has come down to 50% levels from 100% levels and this suggests that there is value available in the market.

At the same time there are what experts call, ‘value traps.’ These are the companies that demonstrate that there is value available and when the investment is made, they tend to fall further. If stock price is the only factor an investor looks at before taking a buying decision then chances are that one would end up seeing the price decline more.

With the market more driven by fund flows, value erosion could happen at a stupendous pace as was noticed when the markets slid to 7,000 levels for the Sensex. Therefore, remaining watchful for developments is something experts have recommended. And in markets like these, the systematic investment plan is the best option.

If you don’t want to be locked into any particular fund, you could create a systematic investment plan by investing fixed sums every quarter as well, say wealth managers. And indeed value averaging or rupee cost averaging are extremely powerful strategies. And when the dust after the market ravage has settled, the benefits of the averaging technique stand out and shine. So the year 2009 would be the most appropriate year to milk this technique.

Clearly, one of the lessons coming out of the year that passes us by is the ephemeral nature of returns and also the huge risks that are present in the economy. Hence, the need for preservation and protection is extremely important. In fact, this could well the your theme for the next year. Creating moats round your investments, building hedges around your house and protecting your family’s financial well-being should be top on the priority list, say experts. The recent terror attacks that happened in Mumbai is a demonstration of how unsafe things can get.