Equity is everywhere: debt is nowhere

Below mentioned views are of the mine. Please comment if you feel like.

Equity is everywhere: debt is nowhere

I wonder why suddenly with the boom in stocks everybody is running towards stock market ? whats reason? everyone wants to make money... but then what about safety. Is there always a proper combination of Risk & Return for every investor, small or big. If not, then why everybody runs to stock market without even knowing whats the reason behind boom, why ABC Ltd. company's stock has doubled in last 10 days or why XYZ Ltd is suddenly at all time high.

Not every company is fundamentally strong then why most of them see the highs in prices & that too every other day?

Mr. A won't spend 100 Rs. without having a good value for money... he won't buy a pen worth 20 rs. in 25 rs. 'cuz Mr. A wants value for money but why Mr A. is still ready to buy a stock (a share in the company's ownership) in 100 rs. without knowing whats the underlying asset value or i should say just because someone told him that price will rise.

The boom has given many, alot to cheer about but the same boom has given many restless nights also. The reason why people run to equities in booming market is very simple.. they want to make money & they have heard the inflated success stories but they have ignored the failures of many. Famous Investor Warren Buffet suggests that buying a stock is just like buying an asset & one must compare the price with value of stock.. irrespective of what his future expectations are. If one invests this way... probably of failure is less. but still people go their own way..

why ?

I believe one of the very important reasons is lower interest rates & high inflation. If you see the kind of interest rates one gets in saving accounts now a days with the bank.. i think the interest rates would hardly cover the inflation factor over a period of 4-5 years. so the saving one makes seems to have stop growing or sometimes the value starts declining also.

Another reason could be timings of Investment & Cash Flows. some of the Government schemes offer greater returns than Saving Accounts but then again the problem is the long investment periods like 4-5 years or sometimes 8-10 years. One may not always be willing to invest for such a long time.. specially the middle income group which normally doesn't have much surplus funds to use when needed urgently. About the Companies debentures also.. well companies do not normally come out with debt issues in booming equity markets, simply because they know.. most of the investors will turn their backs to debt at that time. so companies prefer to come out with Public issues & normally shares are issued at a much higher price than the fair value. The pity is that investors who keep a check on company's future expectations when applying for debt issues normally invest in shares blindly when they see market going up daily.

All in one is that most of the investors, specially retail investors, do not invest by the fundamentals of the company. It was clearly proved when a share had seen a surge in prices just becuz the company's name would be changed from ABC LTD to ABC INFOTECH LTD or something similar, during IT boom

so in short a boom creates a Risk-Return imbalance in the market for small investors & sometimes for very big investors also. One must walk with care & not invest just because the broker called up to say, "sir !! xyz share is 10 rs. up since morning.. & its 75 rs. up frm last month."

Remember - Booming stock market is the time to sell & not the time to buy, if you can't decide upon the fundamentals.

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Sumit K. Gupta
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