Extreme optimism to Extreme pessimism

When I started investing in the Stock markets, one of my uncle, whom I suppose, have tasted the sourness of 2007 market fall, opposed it with full guns blazing. According to him I am too immature and inexperienced to understand the complexities of share market, till now he nags me about my % returns and what not.
            This is a common view of the retail Investor who was investing in the market at the time when Sensex was trading at 21,000 and the same Investor when listen to the expert saying him to invest today when Sensex is at 15,000, raise the eyebrows and is fearful to invest a penny in this market. This is a roller costar of extreme optimism to extreme pessimism. People are too fearful to enter even at these crazy low valuations which will surely give handsome returns with 1-2 year prospective.
Extreme Optimism in 2007 when the Sensex hit record highs on a regular basis and crossed 21,000 and the rupee strengthened rapidly against the US dollar to trade at highs of less than Rs 40. Forecast at that time was higher peaks for the Sensex and more strength to the rupee. India could do nothing wrong at that time and the whole world wanted a piece of it. Over bullishness lead to a disaster from which some are yet to recover.
Today, after four years, the Sensex, which closed at two-year lows of 15,350 on 19 December, when everything is going wrong for it. Domestic issues are compounded by global issues in the form of sovereign debt issues in the euro zone, is a classical bear market with extreme pessimism and where all news is bad news. The equity markets are giving good opportunities for investors who can get over their fears. Bear markets tend to depress prices more than warranted and that itself is a natural risk-control mechanism. Downside risk at every level becomes lower.


It is going to be difficult to put a time frame for this bear market to play out but it may well be sooner than later. Investors should not wait for the end of the bear run to invest; it is better to invest closer to the end of the bear run and this may well be now.