Sensex - what does it mean

The market has been gyrating between 16000 to 18000 for quite some time and depending on who are you speaking to it can either go upto 25000 in next 18 months or do down to 12000 in the same period.

I have been wondering for quite sometime, what does sensex really means. As far I am concerned it is index based on 30 companies drawn from various industry. Well, they have tried to make sure weightages from various industry correspends to their weighatges in economy. It is also implicitly assumes that if particular industry has to grow dominant company (sensex representative company) in that industry also has to grow. It assume we can't have an industry growth driven by many smaller players, consolidation is the name of the game.

As far I am concerned, I think value of Sensex is immaterial for investors. Investors are the business owners and should look at the potential growth of the companies they are owning vis-a-vis price they are paying. As long as they don't get carried away by into buying lousy business at any price or good business at very hig premium they should do fine. As Charles Munger said, it is fairly obvious to many people the businessed that will do well so naturally they will also be priced high. It requires lots of patience and intelligence to identify a good business that are available at reasonble or bargain price.

I am struggling to identify a good opportunity in the last 6 months but keep getting unsolicitated mails /sms's saying they would help me in identifying a multip-bagger every week / fortnight etc. Good luck to them.

Comments

Unknown said…
I agree. I think buying decision should be based on the prospect of the country/industry/company independent of sensex. The only reason why sensex might be relevant is because that will give you a sense of price you are paying for the particular asset class
August 17, 2010 at 11:48 AM
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