One of the best pieces of advice that I received from my boss goes like this –
“Arun, there are two periods which will define you and your career…
How you behave during times of success and
How you behave during times of failure.
The other things mostly will get taken care of..”
On similar lines, I believe being a good investor is all about two things –
How we behave during the best of times (bull markets) and the worst of times (bear markets) will eventually define us as investors
In other words, this means we need to be able to evaluate the degree of risk in equity markets at various points in time so that we can manage our behavior correspondingly.
Unfortunately, there are several moving parts in evaluating equity markets and for a large part of my investment career I have been guilty of taking only one perspective (based on whichever was the popular narrative at that point in time) and missing out on the bigger picture.
This was exactly how I was evaluating equity markets!
Anyway, better late than never..
While I proclaim no sudden “enlightenment” on what drives the market, the attempt here is to share with you a slightly more holistic framework on evaluating equity markets.
I believe, there are 5 perspectives or vantage points, that we need to take while evaluating the equity markets.
Since this is an evolving topic, I shall update corresponding articles underneath these topics as and when I write.
1.Valuations
Focus will be on various valuation parameters to evaluate on how expensive or cheap the equity markets are..
What returns will I get from equities going forward?
What returns will I get from equities going forward? – Part 2
A layman’s guide to equity valuations
2.Earnings Growth
We will track the fundamental long term driver of equities i.e earnings growth in this section. We will also see various methods to evaluate earnings growth.
What returns will I get from equities going forward? – Part 3
Equities – dismantling the returns !!
Equity Investing – Just 2 things to remember
3.Demand and Supply
This vantage point is based on the The Law of Supply and Demand.
It simply states that when demand for a freely traded commodity exceeds the supply of that commodity, its price will rise and vice versa. And, since common stocks are a freely traded commodity, their price movements are dictated by the Law of Supply and Demand.
4.Interest rate
Interest rates act like gravity on asset values – The higher the rate, the greater the downward pull. That’s because the rates of return that investors need from any kind of investment are directly tied to the risk-free rate that they can earn from government securities. So if the government rate rises, the prices of all other investments must adjust downward, to a level that brings their expected rates of return into line.” – Warren Buffett
In this section we will evaluate our outlook on domestic interest rates..
5.Global Markets
To get an approximate sense of global markets via global market commentaries from popular investors, valuation parameters etc
Book mark this post, and hopefully a few years down the line as we put the pieces of this jigsaw puzzle together we should have a much better understanding of the equity markets.
As always let us keep learning and sharing.
Happy investing folks and don’t forget to subscribe to the blog:)
Disclaimer: All blog posts are my personal views and do not reflect the views of my organization. I do not provide any investment advisory service via this blog. No content on this blog should be construed to be investment advice. You should consult a qualified financial advisor prior to making any actual investment or trading decisions. All information is a point of view, and is for educational and informational use only. The author accepts no liability for any interpretation of articles or comments on this blog being used for actual investments
The Eighty Twenty Investor 
Good one.
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