Indian stock markets have been booming for more than a year now. There does not seem to be a ceiling to it. The key broad market indices are scaling newer heights almost every day. They have grown by 50% over the last one year. Markets are attracting a lot of money now — lot of retail money too. The secret to creating wealth is out in the open. Ask any number of stock market participants.
I’m no stock market expert but I understand a number of factors impact stock prices. A few categories that come to mind are:
- Factors intrinsic to specific companies — like how the company is doing, its historical financial performance — consistency of the numbers, durability of financial performance , management’s integrity and ability, competitive advantage
- Factors specific to the sector that the company operates in — sector financials such as profit margins (reflection of who holds the bargaining power — customers, distributors, suppliers), competitive landscape etc
- Broad market factors such as market cycles, developmental stage of the economy, inflation, population growth and demographics etc
- Demand and Supply of money and stocks
- Perceived attract-ability of stock market vis-à-vis debt markets, real estate, gold, crypto etc
I do come across a fair share of stock market participants and the current dominant view seems to be chase and capitalize on the macro trends. When you grow your money by 50% in a year, it is only natural for one to think that stock markets are infallible. This coupled with our brain’s short term memory and natural susceptibility to presentism, we cannot be faulted for extrapolating current growth-on-steroid rates to immediate and long term future.
Now, what about the red hot IT job market in India? Seems like a great time to be an IT engineer. IT skills are in hot demand and being on “notice period” makes one even more desirable. One is able to command salary hikes that one could not even have dreamt of even two years ago. My guess is quite a bit of this is coming from the significant increase in IT demand which was picking up even before COVID-19 but that the virus accelerated — digitization has become an imperative for all industries now and hence lot of IT work. One should not wrong an IT professional for believing that s/he could never go wrong. Big Data, AI/ML, Cloud and Digitization buoy career prospects for everyone and keep these prospects elevated for a long time to come. When I think about making careers, notwithstanding the in-vogue hot trends and skills, the following aspects seem to be timeless factors that always mattered:
- Creating more value to the employer than the value employer is creates for you
- Solving real business problems or creating real client value at work
- Sharpening one’s learnability all the time
- Demand career growth prospects from the employer but become worthy of growth first — growth is never an entitlement
In the last couple of months, 10th and 12th board results were out and from what I understand, this year getting 90% or more seemed more like a rule. While I’m not close to the marking methodology, I have heard that sufficient leeway was allowed to schools and colleges in adopting scoring methodology. Can one blame those students who may take this kind of marks as well deserved — is there a possibility of entitlement creeping in. Good grades are good and important but the following factors come to mind as necessary requirements from education:
- Learn to ask right questions
- Value curiosity and enquiry
- Basic social skills
- Strong foundation of basic mental models from core disciplines like mathematics, physics, biology, economics, computer science etc
In these three instances, general and macro trends seem so dominant that micro factors seem immaterial. It makes sense that one exploit these trends to one’s advantage. But it is important to remember that macro trends alone cannot create lasting progress. One should never lose focus on salient factors that build durable value. I believe these intrinsic factors anchor and create long term value whereas macro trends have potential to elevate this value.
Don’t let default success lull you into thinking that that is all there is, to achieve success. Progress is a never ending journey and one needs to keep sharpening and deepening the micro factors all the time.
While basking in the shadow of these macro trends, some questions worth pondering:
- When the stock markets fall (eventually they do — either by way of correction or a genuine slump), how would you behave? How critical is the new wealth for your short term goings-on? In other words, did you take care of hygiene factors such as emergency fund, asset allocation, good performance in your day job?
- When job market goes out of favour, will your company still value you enough to keep you? In other words, are you constantly focusing on creating real value for your employer?
- Great grades in 10th and 12th can increase the chances of getting into a good college — nothing more. Is the student focusing on real learning so that she/he gets good opportunities post education?
Sunny days and rainy days follow seasonal cycles — it is fun to bask in the sun and fun is important but it is equally, if not more, important to account for the rainy days which sure are around the corner. Ride the waves but also plan to survive, if not thrive, the troughs too.