In long term (5 years+), or even medium-term (3 years), stock prices go up in lines with earnings growth and starting valuation. Even if there is volatility in the interim, the stock prices of good companies recover to match respective earning growth.
We believe that the current market has opportunities in the manufacturing and infrastructure/housing sector. Lower interest rate, pent-up demand, PLI scheme, rising commodity prices are very favorable for these sectors.
Every cycle has different sectors that perform well. We believe that favorable valuation and earning growth are two positives for manufacturing and infrastructure stocks.
We recommend equity investing only for long-term savings so that near-term events become irrelevant. We do not find any merit in second-guessing what’s going to happen in the next 6 months-1 year. If the shortlisted stocks are good companies, with good growth prospects, they will deliver returns in line with business performance. Picking the right stocks is easier than predicting the market direction.
We continue to recommend Gold Fund/Gold (up to 5-10% of the portfolio) as a hedge from contagion risks.
Avoid any type of regret while investing. Regret can come from either missing stock or not adding enough to a winning stock. Rather focus on overall strategy as explained above.
Do not disturb equity allocation in your asset allocation. At best you can increase/reduce 5-10%. Beyond this, tinkering with asset allocation will only reduce long-term returns or increase the risks of missing one’s target corpus.
We have diversified our stocks portfolio, we have diversified assets and we have a long-term horizon. Together this takes care of all potential risks in investing.