Happy Holidays!

Equity markets are making new highs every day. Other assets like gold, bitcoin, bonds, cash, real estate, etc., are also performing decently. Logically, investors should be happy and looking forward to a great holiday season. However, multiple interactions with investors and other market participants, over the past couple of weeks, indicate to the contrary. Investors appear stressed for a variety of reasons.

Those who are underinvested are suffering from fear of missing out (FOMO). Those fully invested are worrying about protecting their gains, should there be a sharp correction. Those invested largely in defensive large caps (likes of Infosys, TCS, HUL, RIL, Nestle, HDFC Bank, and SBI, etc.) are disappointed to see their portfolios underperforming the friends and relatives who were more adventurous and invested largely in the broader markets. Those who are leveraged are constantly worried about a sharp correction, margin calls, and rising cost of borrowing but are too greedy to cut their positions.

The market participants servicing these investors also have their own stress points. Fund Managers have communication challenges. Those who believe that the market might be running ahead of fundamentals and that incremental investments may not yield the returns expected by the investors are struggling to communicate their honest views to the investors for fear of losing money to competitors. The stock brokers are enjoying the highest-ever volumes and brokerages, but are constantly worried about sharp corrections, margin calls, and leveraged traders losing money and getting out of business. Research analysts are finding it hard to justify their opinions on valuations and future price movements of stocks. Investment advisors are facing the challenge of how to convince greedy or fearful investors to maintain discipline and adhere to the predetermined asset allocation.

Overall, the market participants do not appear happy, or not at least as happy as they ought to be. I am not sure if anyone could help relieve their stress, anxiety, fear, and/or jealousy. Maybe, we should consider incorporating spiritual gurus in the respective investment teams of investors for this purpose.

On my part, I can only say that avoiding some of the market jargon (mostly meaningless and redundant to the investing context) could provide some help. For example, avoiding the following jargon from contemplation, conversation, and considerations could relieve a lot of stress for investors.

ATH (All time high): This is used to imply a strong upmove in a stock or index, usually without a historical or relative context. If Nikkei225 of Japan gains another 15%, it will make an all-time high, but would have offered zero return to someone who bought it in December 1989. Nifty recorded its highest-ever level this week. In historical context, on many occasions, Nifty has fallen 10 to 60% from its then all-time highs. So this ATH is a reason to be happy to be cautious? In relative context, Nifty is up ~13% from the level a year ago; whereas, the indices in struggling markets like Germany (~16%), US (+16%), Japan (+20%) and peers like Brazil (+14%) have done much better. On a three-year horizon, Nifty (+~57%) has vastly outperformed its global peers. So, if we ignore the historical and relative context, this ATH has no meaning.

Largecap, Midcap, smallcap: These are the terms used by different people to imply different meanings. SEBI defines Largecap stocks are the top 100 market cap companies; Midcap stocks are companies ranked from 101 to 250 in terms of market cap; and the rest all are smallcap stocks. By this definition, Companies with a market cap above Rs693bn are largecap companies; companies with a market cap between Rs239bn and Rs693bn are midcap companies; and companies with a market cap less than Rs239bn, are smallcap companies.

However, investors usually confuse it with the current market price of the stock of the company. It is a common perception that Yes Bank (CMP Rs20, Market Cap Rs628bn); Suzlon Energy (CMP Rs38, Market Cap Rs519bn), Vodafone Idea (CMP 13, Market Cap Rs628bn) are small companies; whereas microcap companies like Swaraj Engine (CMP RS2215, Market Cap Rs26bn), Johnson Control Hitachi (CMP Rs1140, Market Cap Rs31bn) Force Motors 9CMP Rs4050, market cap Rs.53bn) are perceived as largecap companies.

Avoiding this jargon and focusing on the fundamentals of a company could definitely relieve some confusion and stress.

Some other similar jargon, which are totally avoidable are Long-term and short-term investments; TINA (There is no alternative), FOMO (Fear of missing out).