im writing this update in the midst of travels to 3 countries. More to do with the fact that after several months of rally, the market had a first shake out.
i am particularly happy with the shake out. Not because I was selling but do the fact that such shake outs are the best opportunity to re do portfolios, identify strengths vs lucky moves and become more sanguine in the overall pursuit of investing.
the dust has started to settle. The last few months saw a sudden adrenaline on the part of perhaps those who missed buying good stocks “cheap” or by those who suddenly found greed in speculating. The overall correction in some stocks that did not seem to have any merit to rise in the first place has as always trapped many a gullible investors. I heard talks of selling due to margin pressures as also a bit in panic and then again realized the bulk of fall was in predictable companies.
brpkers, investment forum and word of mouth whisper had led many to believe of turn around stories in high debt cos, awarding of dream contracts by a progressive govt, imposition of fresh capital to met adequacy norms and thus recapitalization of poor banks, talks of surging profits in indian chemical companies of which attributed to china and pollution norms and other such carried in the moment stories.
i once heard an interview by a veteran investor who used the terminology “barsaati maindak” (rain frogs) describe a genre of stocks that usually run in a bull market but when the rain stops are left croaking. I find no rationale personally to believe that the market has actually done investors a big favor by allowing some of these rain frogs to be identified and in some cases eliminated from the difference between skilled in. vestment and luck.
Having reduced some holdings in the last few days, I find myself back in a fully invested mode.
while the Supreme Court order set lose some concerns that businesses may have in terms of credible sustained investing in india, some of this will in fact weed out by a more transparent way of doing business in india. At the same time improving macros should hold the light in more predictable businesses as against the rain frogs.
for those of you who follow me on Twitter, you may recall I turned overweight on IT last month. This is in addition to the fact that unlike some fund managers, I am not yet in the school that believes infra and capital goods will score over Pharma or consumer. While there is no doubt that the mkt caps of pharma and consumer are high, but then that usually holds a concern if the is either no growth or margin contraction or the lack of catalysts. In the last few months right from Giants like sun pharma, lupin to mid size innovative companies to small and medium pharma cos- the story has run out well. Some have benefited by volume growth, some by tie ups, and some by macro factors including currency. The pharma business while the most complex to understand when it comes to drug discovers, research and development costs, drug failures, recalls, regulatory controls, price controls etc remains a favorable story.
as they say every bull run has a new participant. So far Pharma is showing the initial blue prints of being the favored sector, in close battle with agro chemical companies. There is also an interesting consumer boom being triggered in products apart from the usual soaps and detergents. While some companies are soaring on the back of hygiene products, others are scoring with unique beverages, malts and their branding power. However an equally interesting boom is touching entertainment and multiplexes, battery companies on both automobile and costumer battery segment, paints, housing finance and the like.
while reading through Morning star’s take on economic moats I decided to enact a simple idea. I began to jot down names of some stocks that had in my perception unique, profitable economic moats. I ended up making a list of almost 90 such companies, most of which per me are investment grade.
some of these Include large caps, some mid caps and some small caps.
however what is interesting is the sheer no. Now while it is bound to be that some cos outperform the others in shorter duration, I believe overall many of them will catch on and it will only matter how much you owned and for how long.
it is also impossible to own 90 companies unless you had a winning lottery ticket with a huge prize or where blessed with an inherentance but for those who live a normal financial life, a basket of few of these copamies could do well.
I have started realigning my holdings to favor some of these companies. While I never owned most cyclical companies, I did own some chemical commodity plays. I have exited most of these to enhance the holdings in IT and these moat stocks.
the standard poor upgrade to india on the eve of mr Modi and his usa visit should be a shot in the arm of liquidity flows. It is extremely heartening to see that in the past few days of high fii selling there is good dii balancing.
I asked a friend how much his portfolio was down in the last few days and he said I don’t know. I don’t see portfolio ups and downs so soon. I think he is right and wrong. Right on not seeing but wrong when one sees in times of good corrections. The English proverb a stitch in time saves nine guides me. I made my own version a stock in good time is worth buying 9. Market falls are good time to see where the nervousness lies and to bet on strengths. My overall portfolio corrected by 3.8 percent in the last week of decline. I immediately sprung into action and took the plunge to add to some stronger stocks or more visible stories and eliminate some chemical stocks. The highest new allocation went to pharma, agro chemical and IT.
in aaddition to chemicals, I also sold out a hardware IT company that was bought at 30 odd levels, booked out completely of a small cap asset play. While these may also bounce back with a market bouce up, I feel encouraged to own known knowns vs emerging unknown names.
in investment psychology is paramount,. You need to believe you can win to make a mark. On one of the email trails I went through there was too much buzz on a few stocks unitech, gmr, JP associates. These ended up as top losers, besides suzlon. Buzz usually is part of an alarm. An an alarm should wake you up and not blind you.
i did my best to balance this write up without namimg any stocks that were added or sold and yet to be able to communicate my thoughts.
time to enjoy the weekend and look ahead to even better times.
standard caveat: I’m not an investment consultant. I am not making or desire to make any recommendations. You are advised to consult a professional on stock merits or demerits. This write up was typed spontaneously and may have typographical mistakes. They do not prove that I have bad spellings or no eye for detail. Cheers.