When being Dumb really pays off

This is biggest lesson from the stock market in India over the past year. This might sound absurd but in certain situations—particularly in the past one year—this seemed a better option. And considering the stocks market news so far from India, this investment strategy looks sound, until the cloud over US credit crisis clears. So if you are looking to park some money, just dump it into fixed deposits or debt mutual funds, instead of trying to pick up gems from the stock market rubble.

A tally of the losses in the past one year demonstrates that the meltdown has not spared any sector. Only FMCG and healthcare sectors have not burnt your cash in the year ending September 23. But their returns have also been marginal, even below that of average debt funds. The healthcare index on the BSE has risen by only 5 per cent, while FMCG index has increased by 2 per cent. During this period, the benchmark index Sensex dived close to 20 per cent.

The oil & gas index had a marginal loss of about 2 per cent. But other sectors like metals, banking, capital goods, realty, auto, and IT lost more than that of the benchmark index. Realty was the biggest loser, losing more than half its value while consumer durables lost more than one-third of its value.

In contrast, the best performing debt fund DBS Chola Monthly Income Plan (Growth) gave a return of over 22 per cent. Franklin India International Fund, and Canara Robeco Income Scheme (Growth) also gave you over 15 per cent returns.

The global uncertainty is going to stay for some more time even if the US government manages to pass the bailout package. The package will add to the already strained finances of the US government and it may also pull the dollar down. The controversy surrounding the bailout package in the US suggests that this is not a foolproof plan to rescue the credit markets.

Even if the bailout package is passed, the biggest question is how to value the toxic mortages that are at the heart of the problem. And banks may try to dump those that are the most troubled. Further, the bailout package will need a lot of time to address the core issue because the securities underlying these mortgages are very sophisticated in nature. Moreover, there are chances of more delinquencies on these mortgages in future as the US economy slows.

In the midst of these uncertainties, even gold also looks a safe bet. In the past one year, some gold ETFs have returned in excess of 35 per cent. Another dumb investing method.Until the clouds clear totally and you are able to see a firm trend in the stock market, it is better to stay dumb and it will pay off.