Random thoughts

Hey everyone,

thank you all for your wonderful comments and appreciation tweets, mails and posts. I was not due to write another update till September 2014 but given the long holidays and some bit of reading up I did plunge into another update.

the markets are poised at an interesting juncture in so far as divergent views are concerned.

one school of thought argues in favor of geopolitical uncertainties at its apex, impact of India’s WTO stand off and a no longer cheap market. You can add to the thought of an inevitable interest rate hike in USA. In an interesting article titled end of illusions, Amansa capital wrote on the market possibly running out of patience and awaiting a more concrete action than hope from mr modi’s government.

the other school of thought examines the following facts:

a) even in this so called bull run, the market, contrary to illusion, is up only 25 percent odd from 2008 peaks in sensex terms and is down some 10 odd percent in terms of mid cap peaks in the same period;

b) other than for Russia, Indian markets are rallying below emerging markets;

c) there is more disbelief than belief;

d) not even one IPO has come in the last few months;

e) the bets of market gurus have seen their best picks tumble. Event examples include delta corp, prakash industries, bhushan steel. The media sector, an overweight with many smart investors has in fact rallied the least. The cement cos, are more or less moving at a snail pace while the rally in some railway stocks that were believed to be huge beneficiaries of mr modi’s purported rail budget have corrected a lot. The same also holds true for real estate,infra and some capital good stocks too.

so where is the market?

my own past experience on market shows that the smartest of people are usually wrong in predicting market directions. Markets are governed by an element of risk and an element of uncertainty. Risk is a willing act and without it returns can never exist. In a risk, the bet is on an outcome and some degree of control remains. Such as in terms of expected time for outcome, expected win or loss and some expected variables.

uncertainity on the other hand is completely beyond control.  We can assume we know it but evidence suggests to the contrary. Think of all the dooms day or boom predictions. We read them with lots of interest as in their inherent nature there is something radical. Those who make predictions draw attention as they stand out from the crowds. You can always look at a person in a bright yellow or flaming red shirt but in deciding if he is looking good or bad, your judgement will need to examine that person in different colors and styles. The human mind is trained to look for changes. Even within. New haircut, new clothes, new look are much sought. Hence new views too.

it is very rare for media to make a compilation of the no of people who get the market prediction wrong. The focus is always on one mr bright who made a radical departure and got it right, little do we think, in terms of the law of probability, the role of randomness, the spin of chance in a pool size of millions of predictions.

i for one have noticed that u like their ability to predict market moves, savvy investors do far better at stock picking, the vision of a co and it’s growth potential, of its financials, of managements and their credibility, of competitive advantage etc are more logical to trap. Some of the savvy investors also read a lot and make notes from history to guide them from making mistakes.

a lot of money is in fact made by avoiding mistakes than by skills of stock picking. Avoiding mistakes can mean euphoric waves to a comparative wealth study of companies or sectors. 

I for one have no skill in knowing where markets are going. Behavioral science suggests that markets are yet to touch their potential but a more seasoned analysis exposes risks of shallowness of our markets with excessive fii dependence and some ego political and economic considerations of USA and other markets that impact fii behavior. 

I do realize my own skills get better at stock picking. I may not time the markets to a desire but given that businesses usually compound growth, the path of accumulation always holds good light. 

In the past few months, I have personally sensed a rather over confident class of minority investors. That’s good news and bad. Good as it means the majority has not yet invested and thus the markets are immune from excesses. Bad as in those who have and now brag about it are getting complacent to believing that just by reading a few blogs including this one or by sitting with am excel sheet and fast forwarding quarterly results into annualized profits and applying some growth targets they can be safe about many stocks that rewarded them hitherto. 

The price of failure is far more than the road to success. None of the market darlings look cheap. 

Much as we talk of Buffett and pretend to be disciplined, we are far from it as part of normal human behavior. None of the talkers of always invest in good companies buy such companies dissected from value. While it is true that an investment made in Asian paints for ex at any point of time would have given you great returns, one or few examples don’t make a law. One contradiction demolishes a theory for accuracy and the markets are flooded with multiple examples.

i see a wrong trend these days of buying pile up stocks. I am mindful of saying this realizing some of my own core stocks are now expensive. I may have the leisure of owing them from cheap levels but then I have the advantage of a risk pay off on my side. Many new investors may not. 

There is money to be made for sure. It will need more labor more hard work to discover the undiscovered stories. To screen them for their financials, their credibility and their potential. The fact that many cos are not researched by the prominent research houses either for their market caps being minuscule or low or for managements that are not with their eyes on stock tickers and thus not in the flash call a con call mode will make the effort even more complex.

the lure to buy a bad performer looking at its relative underperformance and hopes of catch up or looking at past record of highs and assuming with markets at new highs these will rise from the Phoenix would need discipline. 

The third risk would be to find a co and buy it and see its stock rise faster than anticipated with a small holding in your hands given the illiquid or less liquid nature of the stock. The deliberation then to wait for a price correction or the fear that it may run up even more and to grab it even after a rise will play a tussle.

i remain in my attempt to find a balance path. One of the ways to do that is to make a pool of like minded friends. It’s not necessary for them to agree as in their disagreement lies caution. 

I remain bullish. Not on markets. But on individual and emerging scrips. 

While I may get the timings wrong if markets fall, I will get good returns if my thinking is in check.

past examples of buying in stocks like cera, Kajaria, tech mahindra, poly Medicure, ajanta pharma, nbcc, hindustan composites, Tata dvr, fiem etc to name an illustrative few suggests this is an easier journey to negotiate. 

In this spirit of things, I have managed to narrow down some 25 odd companies. These are now being screened for the right parameters. Names include:

hester biosciences (repeat)

Ifgl refractories- refractories are dependent on steel and the outlook seems to be in a cyclical upturn. The stocks of orient refractories (owned) and Vesuvius have shown similar traction. 

ipca labs- an excellent management that seems to be in a self imposed discipline of its ratlam us export alert, quite unlike some other pharma goof ups and is being graded at par. I’m reasonably sure the co will emerge stronger in the next few months.

aban- the co is doing the right things on its debt front which is the reason for its recent revival. The promoters recently raised 750 crs by a Qip and the results seem on track for this once darling of the market to resolve its debt issues and remain the cash cow it once was. The stock can be a steady riser unless their is some screw up.

Jk tyres- a good play on natural rubber prices, valuation, focus on replacement markets and new OEM.

Kitex (repeat as already owned)

oriental carbon (repeat)

premco global (repeat)

Symphony (repeat)

Bajaj finance (repeat)

The words repeat imply previously added too. Ifgl ref was up a massive 10 pct today as I write. But has steam.

I have chosen a mixed bag of bigger mid caps like bajaj and ipca, mid sized like symphony and kitex and small size like ifgl or premco. There are obviously more names that are not included here as the credibility check on the, is underway and some of them have rallied post great or better results. Will update some of those later.

Happy investing. Your emails are most welcome with suggestions, thoughts, interactions. My usual caveat: I am a passionate investor not a professional advisor. Stock investing is subject to risk.no spell checks done. Errors may persist in some matter. 

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9 thoughts on “Random thoughts

  1. rahul says:

    Great work !!
    Hinduja ventures is not catching investors eyes as of now ..
    Freshtrop fruits bought at 30 and added at 50 .. Booked half at 60 n rest for future .. Any views ??

  2. nrupesh says:

    Insightful as always, you always see from that angle that no one could see.
    We relish your thoughts on market and investing.
    could you please comment on GAEL (gujarat ambuja expoert) company continuously doing well for past some years and could be a good compounder.

    Many Thanks and happy investing

  3. rajni dhawan says:

    Great. equity market indeed seems to be ur passion. can u pl give ur valuable insights on indosolar . thanks in advance

  4. Thanks Safir for the update and your regular twitter updates. I am new investor and really appreciate your views in simple understandable words.

  5. Pramod says:

    Hi Sir,
    I am following you since 2013. I had learned many things from your blogs, what i like most is when you share new ideas then you have a strong reason to buy a stock. I respect you for the ideas i got from you till now. I ask you to share your new ideas with me so that i can do my homework on those stocks also.

  6. Harish shenoy says:

    Great Work sir…

    Respect your thoughts and thanks for sharing.

    I would be grateful if you could pen down thoughts on 2 stocks namely ITHL & S V Global mills. ITHL do you think could replicate UBER kind of car rental business in India, if work on up gradation of technological platform .Near zero debt MNC company available @ sub 10 PE.S V Global mills on the hand is demerged entity of Binny group holding huge track of land in majestic area of Bengaluru ,Heart of Chennai @ Armenian street,perambur, Kanchipuram etc. Is Such companies in your opinion could be in the forefront to float RIET? Though corporate governance issues like extending loan to group companies& management attitude towards minority shareholders is a concern, yet considering land valuations at prevailing market rates, can we take risk? No debt concern & sitting on huge assets waiting to be unlocked.

  7. Sir, Should we continue to Hold PTC Financial & Monsanto ?
    Pls share views on Godrej Industries

  8. Venkatesh says:

    I am a very small investor investing in the market from the time when market was booming in 2006 and later on. at boom time my investment was upto a mark and now it has deteriorated.
    When the markets go up only part of the portfolio goes up and rest of them manage to stay at the same level and may dip to an extent. I have been reading u r blog for almost a year now. My method of playing with the market is i tend to invest in the market depending on a number of sources and most of the times my investment has failed. Then i sell that stock and exit in loss. After say 2 or 3 days the same stock which i exited starts going up and reaches my buying price within that week and in the next week it still goes up and by the end of the month it will almost double. The amount i got from that will be invested in one more stock and that also starts to fall down due to sudden flow of bad news about that company.
    Last stock i sold was TVS motor which i had bought 3 years back at 40 and waited for it to double and sold it at 80 and it went upto 86. Next few days it came down to 70 and i thought i had taken right decision but suddenly it started going up and still going up.

    I bought Bata way back when it was at 140 and still holding it. I think that is the one of the stock which has given me superb returns. But this is the one which is in profit and some others in the loss also.
    My question to you is what should do with Bata now at 1200????
    SKS micro what target i should wait for??? should i make it core?
    I have bought Himatsingka seide and hexaware? what target i can expect for?
    What is your view on smartlink that is going up and up???

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