NIFTY: Election 2014 Positioning... Eliminate Tough Decision Making

The current move in NIFTY, expected to end in a crescendo after the elections, is probably one that will be the defining move this year. If you have already missed the rally so far, or fail to capture the large expected moves after the results are out, your portfolio performance is probably doomed for this year.

The question is do you really give a damn. You are in the game for the long term, right? it does not matter if you miss an election move or two.

So... a first strategy for election 2014 is, well, DO NOTHING. It is so often overlooked in the heat of things that doing nothing can turn out to be a pretty neat strategy. If it rallies after the results you will capture it anyways. If it sells off, you were buying value right? So unless we have a radical outcome, it should be an opportunity to buy.

Okay, now let's say you DON'T plan to do nothing. Here is a way to think about your move. 

Like poker, in markets too, apart from the goal of making money, another important objective is to avoid tough decision. Because tough decisions are always emotional, and that is exactly when you are most likely to make mistakes. And avoiding tough decisions in future is achieved simply by making choices now that makes your decision easy later on.

So let's apply this rule to see how you should be positioned. First thing first. I have no clue which way the market will move from here. Nor does anyone. Let's assume for argument's sake, the market has an equal chance of a large rally or a correction from here. If you go short now, and it does make a correction, congratulations! You made it. Now what if it does not? You make a loss on your shorts, AND you miss the rally. That's okay, no big deal. But what next? can you enter it now? You thought the market was already on the higher side and then it rallies quite a bit more. All you are going to do is to spend the next 6 months on the sideline waiting for a dip. A large one at that. You missed the entire 2014!

Now the other side of the bet. Suppose you went long. The market rallies. Well done. Now you take a re-look at the valuation and decide further action. And what if it corrects. No big deal. It just offers a more compelling valuation then. Way better outcomes no matter if you are right or wrong

And that's the kind of bets to make. Because with markets, the probability that your views are right is not much different than pure chance