The stock markets are at an all-time high. From the Covid-19 crash, the market has rallied and rallied, breaking through new ceilings. You’d think this would be a time of joy but surprisingly sentiment out there is downright gloomy. This raises a critical question—how can we have a market that’s soaring to the skies, yet the mood on the ground feels more like doom and gloom for many?
As someone who has weathered numerous market cycles over the past two decades, I can attest to the curious phenomenon unfolding before our eyes. It’s as if the euphoria of a booming market has been replaced by a sense of dissatisfaction.
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Higher the expectation – lower the Happiness
Not too long ago, I was sitting in a board meeting with a seasoned Chief Investment Officer (CIO), and without any sugarcoating, he delivered a harsh reality check. “Those who’d never thought of entering the stock market are now knee-deep in it. “, “Investor sentiments and expectations are at crazy levels,” he proclaimed, “and when this movie ends, there will be many heartbreaks and even heart failures.”
Ouch.
Now, that’s a bold statement, isn’t it?
Fear of Missing Out (FOMO) & Envy – The Root Causes
Ever heard of FOMO? If you’ve been around equity market long enough, you know it’s the silent killer of reason. The Fear of Missing Out is driving this euphoric participation in the market. People are jumping into Futures & Options (F&O) at an unprecedented rate. Never before has India seen such a massive wave of retail participation in such risky instruments – even SEBI looks worried and shared a study that 93% of the investors lose money in F&O.
Warren Buffett once called derivatives like these “financial weapons of mass destruction,” and it seems we’ve forgotten the lesson. F&O, when mishandled, can blow up in your face like a firecracker in your hand—fun to watch from afar but disastrous if you’re too close.
What about Envy?
But it’s not just FOMO that’s at play. There’s another beast called envy. You hear about your neighbor’s brother’s cousin who made 300% returns on some obscure stock, and suddenly, your own 15% compounded gain on the portfolio feels like a failure
This envy fuels bad decisions. Instead of sticking to their long-term strategy, people chase after that “next big thing.” The result? They jump from one high-flying stock to another, often catching the tail-end of the rally—just in time for a correction.
But as they say, the truth is often stranger than fiction. More than 80-90% of the net money that is coming to equity markets is coming in small/mid cap segment or sector/theme funds. Many of these individuals are not even remotely prepared to understand the intricacies and risks associated with these financial instruments.
Fast and Furious
But wait, there’s more! The IPO mania is in full swing, and it’s not just the big-name companies making a splash. Oh no, even the smaller, lesser-known entities, (SME) some with questionable business models and dodgy accounting practices, are jumping on the bandwagon, cooking the books and getting listed at valuations that defy logic.
And guess what? The mutual fund industry is not immune to this frenzy. They’re churning out new sector-specific funds and IPO-focused offerings like there’s no tomorrow, trying to capitalize on the insatiable appetite of investors.
BUT
Now, I know what you’re thinking: “But our portfolios are growing, and we’re making money hand over fist. What’s the problem?” Ah, my dear friends, therein lies the rub. While the markets may be reaching new heights, the true measure of an investor’s success lies not in the short-term gains, but in their ability to weather the storms that inevitably follow.
You see, the legendary Warren Buffett once said, “Be fearful when others are greedy and greedy when others are fearful.” And the sage-like Howard Marks reminds us that “the best investment opportunities come when things are most uncertain and most feared.”
So, while your neighbors and colleagues are boasting about their latest windfalls, ask yourself this: Are they truly prepared for the inevitable market downturn? Are they building a portfolio that can withstand the test of time, or are they simply riding the wave of a bull market, oblivious to the dangers that lurk beneath the surface?
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Advice from seasoned professionals
My friends, I suggest you to listen the warnings of the seasoned professionals and the wise words of the investment greats. This may not be the last bull market you’ll see in your lifetime, but it’s crucial that you approach it with caution and a clear understanding of the risks involved.
Howard Marks, a legendary investor, once said, “You can’t predict, but you can prepare.” And right now, it feels like everyone is trying to predict, not prepare.
The smarter investors know that the valuations in many sectors & segments aren’t sustainable. When you see companies with little to no profits getting such high valuations, it’s hard not to get nervous. These experienced investors might even be underperforming their FOMO-driven peers right now. But you know what? That’s a good thing. If your portfolio is underperforming in this bull market, it probably means you’ve got a more stable, healthier portfolio. When the tide turns—and someday it will—those who chased the rally without thinking will be left high and dry.
I’ve seen 3-4 market cycles over the last two and a half decades, and let me tell you something: this isn’t the last bull market you’ll see in your life. Markets go up, and markets come down. It’s a cycle, as certain as day following night. And if there’s one thing I’ve learned, it’s that staying calm is more important than chasing short-term gains.
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Stay Calm
Think of investing like gardening. You can’t rush it. You plant seeds, water them, and wait. Sure, someone might come along with a flashy new fertilizer promising super-fast growth, but real, sustainable wealth grows slowly, over time. If you keep digging up your plants to see if they’re growing faster than your neighbor’s, you’ll just end up with dead plants.
Right now, the market is full of people who are uprooting their portfolios, chasing after the next trend. They want quick results, but as any seasoned investor will tell you, quick results often lead to quicker losses.
So, keep your cool, don’t get caught up in the frenzy, and resist the temptation to chase the latest hot investment trends. Remember, true wealth is not built on the back of a single market cycle, but on the foundation of prudent, long-term planning and discipline.
As the CIO so aptly put it, “when this movie ends, there will be many heartbreaks and even failures.” Don’t be one of them. Stay the course, stay calm, and trust that your well-diversified, thoughtfully constructed portfolio will weather the storm and emerge stronger on the other side.
Please ask questions or share your views in the comment section.
