Monthly Archives: August 2013

Oops

Sorry I forgot to add what I learnt from SRK. He believes he is right and creates an ambiance around that echoes him to work towards the right. Investing needs believers and mind conditioning to a larger canvass. You need to imagine your self as winning for winning to happen. Such is the power of the mind that if you today reduce your portfolio value by 10 percent on paper, the market fall won’t even bother you. Money is there to be made, time is indecisive. Cheers.

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What I learnt in one meeting with shahrukh khan

Hey everyone,

Hope you are all shines. The last few days have been turbulent in the markets. I have rarely seen so much gloom in the pink papers, in research reports and in economic updates as I stumbled across in the past week. Almost as if it was a race to eternity, many fiis wrote off the indian markets in the short run while maintaining a positive medium to long term stand.

This intrigues me no end. As part and parcel of any report, I urge the authors to define this short vs medium vs long term. It’s equally important to know what this short term bearishness vs medium term vs long term bullishness means. I recall a famous quote that implies it doesn’t matter if you are right or wrong. What matters is when you are right, how right you are and when you get it wrong how much you lose.

I read a lot of hullabaloo about cries of market falls. Markets are deemed to fall just as they are deemed to rise. In fact there is nothing as a market. What an investor owns is stocks and all he should crave for is to pick the right ones.

Consider while investing, the time horizon at hand. Usually equity investing is for people with a longer horizon as by definition investing is not flirting in and out. I am amazed when I see some fund managers enter and exit the market as if they were in a hedge mode and as if they knew what lies ahead. A prolonged period of dull or low markets is Not a selling time but a time to consolidate and create portfolios. While there are risks of capital erosion, by definition, capitalism itself is a risk.

Investing is akin to capitalism and you should be thankful if markets are in a range as money supply can be better channelized into favoured stocks.

In some sense investing is a mind game more than a guessing game although most like it the other way around. Treat investing as if a kid would treat his piggy bank and drop a few coins in to get a bigger corpus at some time. The benefit here in investing is the piggy bank itself adds interest in dividends, banks on cos that grow their asset base and net worth (though they can also erode it but that’s where selection comes in).

Consider another pitfall in our behavior to investing. Take a situation where we put money in a bank account and do not withdraw it. Would you check balances every day? But with stocks, the moment you buy or sell you want to know how rewarding your decision is. In a humorous way, the poor stock doesn’t even know who his master is and the master wants the stock to be loyal immediately.

I am amused with the view on markets going down. It makes no sense in a logical way except to know how much would your owned scrips fall. The biggest challenge in markets is not in finding the right cos. as information overflow does some of that along with the fact of herd mentality and safety in groups. The biggest challenge is to maintain a temperament when things go wrong. Admit mistakes. Move on.

Coming to the model portfolio, I have nothing much to complain off. Our model portfolio continues to outperform the markets with almost all of the stocks holding up well against an average mid cap fall of 40 percent and an average small cap fall of almost 65 percent. In fact, Since the last post, we have reduced our cost of acquisition further in Wockhardt. As tweeted, I added the stock aggressively at 360 rs odd and have exited the added qty at 460. The residual holding remains and is now pegged at a lower acquisition costs, which gives me comfort.

I am reading up on new ideas or additions but given my busy schedule at work and a very volatile market, expect to detail some thoughts when some stability sets in. I would also share with you that usually high volatility VIX is a buying sign going by historical data. It does not mean markets need to turn immediately but it leaves a base effect of low valuations that in market upturns leave better returns. Usually this is a good indicator.

More soon. Thought will wind up with part 2 of the post but as many investors like comments on stocks, will write part 3 soon. I end with a caveat: to err is human and for you to forgive, Devine. I appreciate the feedback many of you have given last time and trust to have the same again. Cheers.

Irrational behavior and all justifications

Hey everyone,

Hope you are all shines.

The markets continue to play games. As they always do. And investors continue to be confused. As they always do.

The purpose of this update is not to disparage anyone or his thoughts. The views expressed are personal and you all have a right to agree or disagree.

However my general observations are that markets remain rational. They always reflect a price, high or low, is set by irrational investors. I have personally reduced interacting on twitter with ideas not withstanding the fact that my model portfolio continues to beat the markets well. The reason for such a behavior is to protect my mind from irrational thoughts and to focus on what a rationale investor aims to do. That is to invest. I don’t know if I will prove right or wrong. Eventually I have to be right unless the world ends, in which case, it won’t even matter.

Why do I consider investors as being irrational is highlighted in this article. It is not my claim that I am above all this but I am trying to learn along the path.

Example 1: focus is on micro not macro

The world is getting better at many economic things. India is a part of the world. It enjoys one of the highest gdp growth rates even with all mark downs. The world is betting on counties with no growth or with liquidity infusions that are spiraling demand and propelling revival. India continues to have real growth as with one of the highest inflation and lesser disposable income as a result thereof, we are still seeing one of the best gdp rates. So much fuss is being made of some revisions when the same people who made revisions were till last year or so before talking of India overtaking china. Brics was in and india was shining. What an investor needs to realize is markets mature over time and have swings. The same people will come back to upgrade india and India will shine. If time is a problem to decipher, it is fair enough to subscribe to that as a market risk. But if it is taken that over time things will be better, it is silly to try and be bearish at cmp.

Example 2: you don’t get credit for wins, you get flak for mistakes:

The market shows irrationality. If one co has a problem, it initially forgets to distinguish between a systemic issue vs a cyclical issue. Strides acrolab fell from 690 to 580 on medi reports of fipb not clearing the Mylan deal of agila. On the same news which appeared last week in ET of deferment of its approval, the stock rallied from 580 to 820. I recommended buying at 580 as to my mind both news can’t trigger an unequal effect. In reality what seems to have occurred was an fii approval to buy by enhancement of limits which theoretically means the co had ready buyers but who could not buy when our retail was happily selling.

Same is the recent case with MCX. Over analysis by people who know nothing more than to ascribe the problem as common between Mcx and FT. Even when it is a matter of fact that should sebi allow foreign ownership, Mcx will be sold in minutes. While we enjoy Maggi. The assumption that all of a sudden the promoter of Mcx is unethical was seem by me today in one post. What the person posting overlooks is that this is the most regulated business headed by a man who took on the might of bse, nse, sebi to set up what is India’s premier metal exchange fund.

Another example of this behavior is my own model portfolio. I was swarmed with queries on what to buy when the nifty was rising and each stock would rise in minutes of a tweet. Now questions are asked only by a handful when actually more should be looking at buying. It is also ironical that I had 30 stocks beating the markets,none at original purchase price. One down in Wockhardt. One more arshiya was exited several months back as updated here. Yet no one focuses on the 30 winners. The comments are more on Wockhardt and whether it will tank or re emerge. Truly it has been disappointing to see such behavior.

Example 3: assume your salary declines. Would you stop consuming or would you reduce it? Would you try to improve your skills or would you simply give up and condemn everything? It’s the same with markets. When you find your portfolio falling, re balance your subsequent investing by biting what you can overall afford. Buy do consume the market. Improve your skills by understanding what you went right with and what you were wrong with. Learn from history and be prepared for the future. Remember the cardinal rule of investing: in markets you don’t make money by timings but by the time you spend in the market.

Example 4: ranbaxy tanked to 250. If some rational investor who otherwise liked the stock would have bought it he would not only smile at 330 now but also would have the honor of beating many of us who don’t own ranbaxy and aim to make sense of what we own. The point is markets revert to mean and what is good but in pain gets healed. Take another example. Many mnc stocks made new highs as masses predicted delisting of cos before 30th June 2013 to meet sebi norms of 75 pct holding. Thus markets were irrational at their highs in buying. I hardly came across anyone suggesting selling the cos then. When ofs were offered again there was a beeline for them as everyone looked at past highs and decent falls. Most of such ofs stocks are lower.

I picked a few to recommend to buy. Oracle was one. The reason for its rise was more to do with a focus on India rather than an ofs. If you google, you will also find a question to its parent on delisting where the md if I recall had suggested he would be happy to do so at 2200. The stock was quoting close to 2350 then.

Example 5: unilever announced a hike in royalty. Mkts doomed the stock. I turned a buyer. Logic? Royalties are a function of either sales or profits? Royalties only go up in monetary terms when sale or profit go up. The stock thereafter had its best run in years. I recommended an exit at 710 when there was too much euphoria.

Example 6: we talk of a doomsday in mkts. Being defined as? And have no definitions. People who are crying doom need to also suggest whether they have shorts on. Isn’t it then logical that they have a vested interest. Take another situation. I am bullish and I vested. So in that case even I have a vested interest. But looks at maths which has no emotions. It is beyond doubt that many cos are down even 90 pct. a stock at 100 falls to 10 and is down 90 pct. when it rises to 100 from 10 it moves up 10 times or 1000 pct. and again things revert to mean. So isn’t it worth small bites at least? Consider this also. A stock can fall only 100 pct. which it never does. It can however rise infinite. Still bearish to keep everything away?

Example 6: the mkt sells Infy on growth concerns and then buys it back with mr Narayan murthy back. With no financial change. No one knew he would be back. Just as we don’t know what will propel any co back. What remains a certainty is good cos will find a way to do what is in their interest.

Example 7: the munjal achieved a super milestone of 5 cr and 50 countries are targeted for exports. They chose to bifurcate with honda when the doyen, BML munjal and his family could have sold and retired in perpectual wealth. Mr bajaj is bullish on exports. Maruti is setting up a huge plant. Bosch did a huge capex. HUL one of the highest buy backs. So did smithkline consumer. Bata announced its plans to open ,ore stores. Why are we not believing the very people who head these cos and constitute the best leaders our country has had?

More will follow. I wrote enough and need time off on this beautiful weekend. Cheers and happy investing as always.

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