Rare Warren Buffett Interview from India

How Stock Markets will Behave in 2017?

Stock Trader Gazing in attempt to predict the market

Dear Friend!

Thanks for asking the question that is constantly on the minds of a large number of investor population, “How the stock markets will behave in 2017?” Unfortunately the answer is not a simple yes or no but complex and length one as that the:

1. Markets are unpredictable
2. Predicting tolls like the technical charts are nothing but hocus-pocus
3. Making investing decisions based on market predictions could be highly dangerous
4. Value investor never attempt to predict market behaviour
5. Good investments can be made and money can be made during all market conditions

Great value investing gurus have repeatedly emphasised that it is futile to predict the markets. Investment decision have to be made based on the valuations (affordable prices) of stocks of excellent companies under various market conditions. If shares are available at a good discount to their intrinsic values buy them. Similarly, if scrips are traded at very high premium to the intrinsic value of the shares you bought at a discount, sell them.

Let us take the example of NMDC in our academic Portfolio 2K15 and analyse buy, sell or hold decisions under various scenarios as follows:

Table Shows Calculation of the Intrinsic Value of NMDC Share

As on 10th January 2017, the current market price (CMP) is Rs.138.05 and the decision is Do not Buy but hold as the share is not available at a discount and the CMP of Rs.138.05 is not too high compared to the intrinsic value of Rs.113.34 as well as our average holding cost in the portfolio of Rs.105.38.

If the CMP hypothetically was Rs.82.50 we would have bought the scrip as it is available at a discount of 27.21%.

On the other hand if the CMP hypothetically was Rs.282.50 we would have sold the scrip as it is trading at a huge premium of nearly 150%.

So my dear friend this is how value investors react to market conditions rather than predicting how the stock market will behave in the new calender year 2107.

Suggested Further Reading:

• How to Find The Fair Price of A Stock?
• How to Calculate the Intrinsic Value Shares?
• Predicting the Market Versus Reacting To It

Thank you,

With Best Regards

Anand