Monthly Archives: November 2015

Take a deep breath and smile

Hey friends. What a day I chose to update the blog. The news of an election loss for the ruling party just came out. Although is may have a short term impact on markets, it’s important to understand that a market does not have to only fall or rise.

A market can choose to do nothing.

Frankly I expect that until the year end (which fortunately is not too far away) the markets may just do. Nothing. There would be debates on whether parliament will function or there would be more walk outs, protests, noise.

We are almost done with many results, the finding is a mixed bag. Large caps in banking (public sector), two wheelers, infra and capital goods like Larsen Toubro, large pharma like sun, lupin etc are struggling with nos. Some like Dr Reddy now have Usfda overhang. Some like thermax and Larsen have reported slow down in order books. And some like Abb, Siemens, Bosch etc remain good companies at a very expensive valuation.

Mid caps look fairly valued commensurate to both their results and recent run up. Recently I had tweeted that mid caps look fairly discovered, owned and valued.

Frankly it seems to me, at the risk of being wrong, that the market looks tired. There is that feeling that about two quarters onward earnings will improve, credit cycle will be more liquid and interest rates lower. Govt spending may improve, tax rates on corporate taxes may see a bit of softening. But as of today many cos are either fairly valued or even expensive.

An investor may feel happy at market rallies and bad when they fall. But given that equities are a long haul vehicle, boring markets are actually not bad. I intend to use the coming few days to:

A) evaluate some of my past holdings to see if the growth story continues. We sometimes get too carried away in our winners and complacent about sir strength (read valuations). Sometimes we are blinded by the fact that the world and systems are changing too rapidly and a competitive edge that seems sustainable is far more apt to destruction today than it ever was.

In a recent issue of Fortune, I read how global CEOs believe a good co must disrupt 4 times in 10 years. The cost of disruption is evident at the pace at which wealth is being created and displaced.

Today the morning papers spoke on how Facebook has undone GE in its rankings. This trend is likely to continue.

B) some of the stocks we like will become less likable. Nothing wrong with them. Just that some other cos will throw relative attractiveness either due to valuation or new changes. Have a look at some of the recent corporate results. Some of the most written about companies are witnessing disappointing results while some less glamorous cos are reporting better nos or projecting better times. It appears that the usual rules of economics in demand and supply and scarcity causing a higher than fair value are playing out.

It may be difficult for many to know this now or to be right or wrong but there is one good rule that applies well in investing. Companies with good managements usually bounce back and get on track. Which means when good managed cos have a stock market thrashing or a quarter or two off and hence loss of “demand” and abundant “supply” you can take out your fishing rods and sit patiently in the sun hoping to hook on a good catch.

C) I would be personally happy not to over stress to find multi baggers. I feel from my interaction with some and a lot of reading investors are taking multi baggers as anything that’s cheap relative to market. I see more investor talk on cos from a valuation perspective than a qualitative perspective. The whole investing community of india thinks they are Buffetts and Mungers and that all know all moats. This is an art that comes partly by a sound knowledge, partly by a market participation fee and partly by psychology. Some have it but also have temperament and capital. Some have it but have borrowed capital and hence a pit waiting for a day for them to trip. Some have no temperament nor knowledge but believe they have access to some blog, web site, Twitter connect, broker report that would be their Aladin’s lamp.

Guys be patient. In a run up from just 5500 to 7500 odd several stocks have gone up multi food even though market move in far more muted. Take it partly as good timing and partly as a pat for buying some good stocks and not too many bad ones. Now spend time pausing.

Use falls to buy your convictions. Borrow less and save more. Find some good friends and be under their sensible approach to capital building rather than a 20/20 match. It is not usuall for stocks to keep multiplying very rapidly. One bag egg in the basket can rotten the entire basket.

Don’t be swayed by unknown names. Some times cos have magical qtrs but never sustain them. And then when such inherently poor cos fall many turn around and say markets are a gamble and that everything is rigged.

When you run too fast sometimes it’s good to slow down. Observe the nature around. You are bound to find another good spot to run, a bunch of flowers that not many have noticed in their running past them. Read good books. They are like a good breakfast that enhances your temperament your discipline and your approach to a valued process.

As we turn the year to a new Samvat or Diwali, I shall share some experiences I went through last few months.

My greatest experience was winning the love, respect, affection and in some cases, friendship of some of you. I was humbled to meet some of you and see how much you look up to me with the blog that I am a well wisher. Truly a multi bagger for me.

I also saw some of you are truly devoted to learning. In your interactions you are keen to learn the process and not jump to stock discussions. I feel that will hold you as winners in times to come.

I also saw an automatic cut off system. Partly from me partly by a natural process. Negative ppl or thoughts should always be away. Neither are such people worth it nor is the process somethings you have to live with. It’s one life and you shall have enough of your good people around to bother about others.

Finally coming to some sectors or stocks, I am quite impressed with the way some private banks have been taking psu market share. I see this continuing. While someone sways you to say the entire sector is plagued do read some history. There are stocks there with the likes of Hdfc bank, Kotak mahindra bank, Indus Ind bank etc that not only have given phenomenal returns, they have done things to maintain their edge. Even today Uday Kotak says every night when he sleeps he wonders if he will wake up and have his bank intact. See the positives in that. For years the bank has been a huge wealth creator. Aditya Puri sounds confident about what he is doing. See Twitter account of hdfc bank and you will get an idea about how much innovation is at work. Little surprise that the bank has a ranking now in the top banks in the world.

Nbfc look good. Partly by their business model hat allows them to customize at a far swift pace and partly by the fact that with a smaller lending per customer they have greater pricing and lesser npa.

Pharma is under going a great global story. True many are now expensive. So wait. It will cost you nothing. Markets have heir bouts of insanity on select days. Be the punching tiger on that day.

Speciality chemical cos look interesting with their Patent pipelines. One of the best wealth creators last few months was a co called Navin fluorine. There are many more such potential winners.

Keep a watch out on some mnc cos. When great parents focus on children the results are usually tempting. I recently read on a few of them getting serious about India. Some of them are not even unduly expensive.

The prospects of housing finance, one of the best performers since last few years continues to be robust. Ignore the negative talk on land not being sold. Some of it is to do with a complete mess up of builders some to do with speculation. No sane person would not desire to have a better house. And am end customer chooses his dreams. His housing finance enables him to do so. While this is not a recommendation, I think Dewan housing runs a fab advertisement featuring the super Shah Rukh Khan explaining the importance of house loans. No slowdown lasts when it comes to roti-kapda and makaan.

Select pockets of consumption look reasonable. In branded clothes, tiles, tyres (5 are sold for every 1 car) and similar pockets. Some good companies have announced very aggressive capex plans that make their mkt cap look promising if one goes by their history of success.

Be friends, be believers, be patient, be progressive.

We have a long path to our dreams. Never stop dreaming.

Happy Diwali and my best wishes
Disclaimer: the article refers to some stock names for illustration. I may have vested interest in some. I am not a sebi registered advisor and may well be wrong in my views. I will not be wrong in being an optimist in life 😀

Advertisements
%d bloggers like this: