Monthly Archives: January 2015

The year that passed and the year that lies ahead

hi and a happy new year to all of you.

It’s been a fascinating year in terms of markets and stock returns building on an equally good 2013.

I thoroughly enjoyed interacting with you all through the blog, or in some cases in meetings and did my bit to share views on stocks or markets or both. Constrained by a SEBI circular, I have shied away from talking scrip wise of late and shall continue this article in the same spirit.

The purpose of this article is to simply share my experiences in simple words that may appeal to any reader, based on some of the experience I had in the year that passed and the base on which I endevour to see the year(s) ahead.

1. It pays to be optimistic in life and in equities. While it is true, markets have their ups and downs and sometimes downs are brutal, the net effect has always been rising markets. Mathematically too in a buy situation you can get unlimited up side vs a sell situation where you can park your gains but have to trouble your mind to put capital to creative use in a situation of both inflation (lessening of buy power on money held) and opportunity cost lost in holding something that could be a several times multibagger. It’s better to lose a few points to get the multiplication effect

2. You own scrips. You don’t own markets. You are not an fii with an index ownership. Why are you so perturbed about market moves anyways? Even in declining or falling markets, scrips go up. In some cases, cos that you found to be below a fair market cap suffered from no sellers for the same reason that those owning found the co cheap and were not in a paradox of irrationality caused by fear or herd moves. Even if some co falls, due to market panic, it opens the doors to enable buying and as long as you are buying with surplus money and for a long haul nothing matters. You would have never lost a dime in owning a Nestle or Asian Paint or Pidilite even if you bought at the peak of any year.

3. Have your own conviction. I have moved away from borrowed conviction to a headphone mode and while it is ok to interact with people for their knowledge skills, you need not follow everyone’s views on the stocks you own. People may not have a correct perspective on a co due to several factors, which include:

A) their lack of ownership and hence interest;

b) the ownership of other stocks and thus a belief that mine is better than yours. In eft a judgement that only time can test;

c) risk averseness. Please read a fantastic book called Risk Savvy by Gerd Gigerenzer which talks about the perception of risk and reward and that it is not necessary that perceive risk is same as a perceived loss. In The education of a value investor, Guy Spier, talks of the difference in uncertainity vs risk. Plus by imperical reasons, one man’s food is another man’s poison.

D) don’t bother too much about the upside, bother about the downside. Highlight factors that are the base of your buy decisions or sell decisions and measure them rather than keep asking questions on xyz having run up too much and thus ought to be sold.

E) there is nothing as a best scrip by historical facts. While it is true that owning a nestle or Colgate or asian paints would have given you an upside in the past several years, most multibaggers of this bull run were found in small or mid caps.

f) find pools of continuing education in like minded people, in books, in blogs and in people who share experiences such as on you rouge, TED talks etc. The mind needs oxygen of thoughts.

In the years that went by many stock ideas detailed by me worked well. I do not want to emphasize on the winners but want to emphasize on any mistakes or leanings I had.

my first learning is stop discussing ideas with everyone. People have no idea about your company and yet express views as it is human to comment in everything, I have the worst knowledge on some subjects like politics or medicines and cannot assume myself giving a correct perspective on that. Learn from Buffett and Charlie munger and the readings on them.

I have seen there is no pre set formula that wins. Some of us have had diversified portfolios and some concentrated. Some of my diversified portfolio friends including my own portfolio have multiplied several times and yet some of the concentrated ones have done equally well. You are an allocator of capital. Period. Allocate well and make the most of your abilities. Learn from mistakes, even jot them down and follow a path of belief.

some people excel in special situations, mergers, de merger value unlocking, some in timing the market, some in growth stocks, some in value stocks. Some in reversion to mean. Everything works in a disciplined frame.

there is nothing wrong in my view in seeing stock prices frequently in rising markets. The talk do not see your portfolio frequently applies in confusing state of mind often triggered by falling markets and mayhem or irrational valuations. The first impacts your ability to bear loss as the feeling of loss is double to the feeling of gain and the second makes u greedy. Actually the second is perhaps not such a bad idea as it could also make you sell on a spectacular rise above your pegged levels. The mind feels good to see rising prices and a winner has a better state of mind always.

one of my Cardinal mistakes of the year was to exit Relaxo early. I have taken notes on my assessment mistakes and hope to learn from it.

Another mistake has been to follow any group chats  it takes away freedom of thought and time that can be used to read up, think blue ocean or spend time chatting with a like minded friend rating than being in an aquarium of multiple ideas. Remember money is a limited resource with unlimited options and can only be put to limited use. I am no longer in any chat.

I remain focussed in 2015 on reading, evaluating the next multibaggers, in making friends, in pursuing knowledge and new shores and in trying to be a better person and an investor.

i remain grateful to all the wonderful people who energize me and in the company of whom I feel it’s worth being.

India should have good times ahead and I continue to see a lot of value creation in the sectors I tweeted earlier on: housing finance, agro chemicals and pharmaceuticals.

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