Nirav Panchmatia's Blog

Beware of TIME Correction

When it comes to stock market or real estate or gold or for that matter any investment avenue, we all have heard that the PRICE of these investment options keeps correcting from their top at some point of time.

For example the Chinese Stock Market has recently corrected by 25% in one month; GOLD prices in India have corrected by approx. 25% from its peak some time back & Silver price has corrected by almost 50% over last few years;

So basically a big & continuous fall in the price of a investment avenue is known as CORRECTION or to be technically precise, PRICE CORRECTION & we all are familiar with the concept…

But there is another concept known as TIME CORRECTION about which very few of us have heard of. But this concept is so powerful & relevant that we can dare not ignore it.

So what is TIME Correction?

Well, lets say you invested in the Stock Market about 3  years back , lets say you bought 100 Shares of Reliance Industries 3 years back @ Rs. 1,000 per share & today, 3 years later, the price has neither gone down (ie there is no price correction ) but at the same time there was no upward movement in price either & Reliance Industries  even today is available at same price of Rs. 1,000 per share. So technically your investment of Rs. 1 lac (100 shares @ Rs. 1,000 per share) has remained same today @ rs. 1 lac & you are technically in a no profit-no loss situation. However, you have actually incurred a heavy opportunity loss on your investment because even if you had parked your Rs. 1 Lacs in a Bank Fixed Deposit you would have earned approx. Rs. 27,000 on it over 3 years (@9% per annum for 3 years). So while the Share price of Reliance Industries did not go down over the past 3 years , it neither went up and hence you had an opportunity loss on your investment. This concept is known as TIME CORRECTION.

Now, do you want to know which Investment option in India is undergoing a painful TIME CORRECTION today?

Well its REAL ESTATE and how? Real Estate in India is experiencing a time correction for the past 2.5 to 3 years & is expected to experience the same for at least next 2 to 3 years more as Real Estate prices will see an uptick only & only after the Economy revives & starts booming again, something that will at least take 18 more months.

Now imagine that unlike Shares or Gold or Silver, Real Estate is a big ticket investment. You don’t invest 10 or 20 Lacs in Property but at least 30 to 50 Lacs & more if not in crores. So lets say you bought a Property a few years back (at the boom time) @ rs. 50 lacs and today 3 years hence you are seeing that nobody is willing to buy it at that price today; what more, you don’t see prices going up at least for another 2 years. So  you have practically earned nothing over 5 years on Rs. 50 lacs investment. Your opportunity cost is HUGE @ Rs. 22.50 lacs (9% per annum for 5 years on Rs. 50 lacs). Yes your actual loss on this investment is approx. Rs. 22.50 lacs and not nil . That is the impact of a Time Correction…

So BEWARE…

 

The Table below gives a gist of Price & Time Correction in various asset classes:

Investment Avenue GOLD & Silver Real Estate Stock Market
Is PRICE Correction expected? YES probably YES since last 1 year NO; Price correction has already happened in 2008 & 2010
Is it presently undergoing TIME Correction ? YES since last 1 year YES since last 2 to 3 year s NO; Price correction has already happened in 2008 & 2010
Is TIME Correction expected in future? Yes expected to continue in future too Yes expected to continue at least for the next 18 months No Way

So now you know where you should be investing in future…

INVEST WISELY…


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