Good time to be an investor, not a trader, says market guru Robin Powell

Once again, we have been asked to sit up and take notice of how inter-connected the domestic and international economies are. As global trends continue to dominate the Indian markets, market watchers worldwide claim that this time only shows how globalised the economies have truly become. In a chat with Business Today, Robin Powell, author and editor of The Evidence-Based Investor, says it is perhaps not the best time to be a trader. 

BT: The Indian markets are going through a volatile stretch. While the trend is bearish – it is a challenging time for investors. How exactly are the global trends impacting domestic markets worldwide?  

RP: These kinds of episodes are a reminder of how globalised the economy has become. It used to be that Indian markets would hardly be impacted at all by market falls in, say, the US or Europe, and vice versa.  

But that is no longer true. Also, markets have reacted to developments that have global implications — for example, growing international tensions, concerns over fuel supplies, rising prices and interest rates. There’s no country in the world that isn’t affected. 

BT: How long do you think this spell will last?  

RP: It’s extremely difficult to predict how long a bear market will last. The bear market of 2020 for example lasted only a matter of weeks; others have lasted for many years. If you include the Great Depression, the average bear market decline in the US is in the region of 38 per cent. The S&P 500 is currently down about 20 per cent. If this is a typical bear market, we’re around halfway through. But there’s really no such thing as a typical near market. 

BT: When the market is in a bear phase – what stocks should investors back on?  

RP: There’s always plenty of chatter after steep market falls about which stocks to hold on to and which stocks to sell. But it’s important to remember that all known information is already incorporated in prices, including the very latest information. So, your chances of beating the broader market are slim. The vast majority of investors are better off leaving their portfolios just as they are. 

BT: For those who are starting to trade at this time, how should they start building their portfolio? 

RP: I would discourage people from trading and to focus on investing. Market falls provide investors with an opportunity to buy into stocks at lower prices. The best approach is to buy a low-cost global equity index tracker and automate your investments, so you invest on the same day every month without having to think about it. 

BT: How can one tell that a market is entering a bear phase? 

RP: It’s extremely difficult to time the top of the market or the bottom. Nobody rings a bell when it’s time to buy or sell! Everything looks obvious in hindsight but it never does in real time. Very tempting though it is to try to time the market, but nobody can do it well with any degree of consistency. 

BT: Even blue-chip stocks stand corrected at this time. So, is there possibly a golden ratio for portfolio diversification at this time?  

RP: Diversification is always the best strategy. You should be investing in companies in every sector, in every region of the world — and in smaller companies as well as large ones. Again, go for a low-cost global equity index tracker. 

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