According to the popular book the ‘Art of Thinking Clearly’, crossing the street in Los Angeles is a tricky business, but luckily, at the press of a button, we can stop traffic.
Or, Can we?
The button’s real purpose is to make us believe we have an influence on the traffic lights, and thus we’re better able to endure the wait for the signal to change with more patience.
The button influences us psychological only. This is also known as placebo effect.
The same goes for pronouncements made by the Chairman of the Federal Reserve; markets move, even though these statements inject little of tangible value into the real economy.
They are merely sound waves. And still we allow economic leaders to continue to play with such illusory dials.
Likewise the market outlook that we so eagerly await and devour with rapt appreciation gives us psychological satisfaction and in that sense is also an example of placebo effect. It gives us hope of a better tomorrow.
The only truth about our economy is that it is fundamentally strong with favourable demographics.
It comprises of a large and young population. Also it is a developing economy. So people still have to make their purchases. This indicates the potential of economy to drive consumption and help industries to flourish. Hence ‘returns’ can be expected to be good.
This is the only truth and this story will not change for at least a decade or more.
Hence be simple as far as investments are concerned. Lump sum or SIP should be for the very long term.
Every other strategy is a lottery ticket and a function of hope and prayers designed to make us feel psychologically good and remain hopeful.
Everything then boils down to sentiments. Just a feeling.
It would be a real wake-up call if all involved realised the truth – that the world / Indian economy is a fundamentally uncontrollable system.