You Shall Not Pass: Determination and Boredom in ‘Range-bound’ markets

“You Shall Not Pass.” This was famously used in J.R.R. Tolkien’s The Fellowship of the Ring, the first volume of The Lord of the Rings. In the novel as well as in the movie based on it, the wizard Gandalf declares staunchly, “You shall not pass!” while blocking the Balrog (a demonic creature). A bit of googling reveals that the phrase was originally used during World War I, during the Battle of Verdun, by a French General, Robert Nivelle. It has since been used as a slogan or a war-cry to express determination to defend a position against an enemy.

You-shall-not-passIt was this kind of determination that was required today in the Lords Cricket Test that India lost to England. Nobody quite strongly said “You Shall Not Pass” to the English¬†bowlers, and it was a matter of time before it was wrapped up.

For the past few months, the market too seemed to be tied in a deadlock with the bulls and the bears saying ‘you shall not pass’ to each other, and not allowing either to get the upper hand. It has been a time when most business channel anchors use the term “range-bound” so often. It is so uninteresting to them to wake up every day in the morning, cover the hectic activity minute to minute, and finally it all ends up being ‘range-bound’ activity with ‘stock-specific’ action. There have been event after event created – from seemingly important ones like release of inflation numbers, quarterly results, IIP numbers, credit policy, Greek crisis, oil prices, European debt crisis, Chinese slowdown to tactical issues like expiry of the monthly series and daily volume turnovers. But the net result for the market has essentially been status quo. The end of every event makes everyone look forward to the next one – but the market again says – You shall not pass – I stay where I am – ‘range-bound’.

For an individual investor, perhaps neglecting all the action (or net inaction if you may say so) continues to be the best strategy. Lethargy bordering on sloth remains the best policy. The formula remains the same – fix your long term asset allocation, select and regularly keep adding to those assets, and rebalance once in a while when there are major moves. To everything else that tries to distract you from this path – the response should be – You shall not pass.

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