Monthly Archives: February 2016

Happy Valentine’s Day

Happy Valentine’s Day

Hello friends. This update starts with an interesting anecdote that attempts to explain my reading of a situation we are currently in.

On 8th February, I created an original tweet. It went like this:

Dear February,
just because it’s Valentine’s month,
we don’t need to see Red every day.

Yours,

Stock Market

#valentine #bse #nse

In matter of less than few days, this very tweet went viral.

So much so I got it back from others all across india and it was even read out on Bloomberg, albeit as a forward.

Some of the sources who forward it back to me claimed it was from them and later a few admitted to have received it as a forward. The source was never discussed.

Hang on.

This memo is not a grudge memo, although in a market fall, it is usual to have grudges.

Our lack of education in schools and colleges on risk or loss management adds to a situation where we lose control of what is logical and start piling on mass beliefs. While this should ideally sound logical, we forget that mr stock market is a believer against majority.
The point of reference to my tweet was-

1. We live in a world of mass connect;
2. We hear a lot of views and even forward them causing a greater belief on these views;
3. We hardly investigate sources more so in falls as every thing seems justified in a reasoning even though we defy the same logic when markets rise and show a far higher sense of confidence in our actions.

Relate my tweet to the current market scenario.

December end, we all were told by all channels, magazines, experts, consultants, funds that as we end 2015, we will dawn on an exciting 2016. New allocations to fii funds will keep their interest alive while retail would buy so much that “inevitably” it would overtake fii buying. Hence with both fii and dii on the buy side, the markets would continue to do well. At best, the debate could vary on “how much” but not many seemed doubting the sense of direction as UP.

Look up the sensex and nifty targets of majority of Broking houses and the stock recommendation reports. It was a buy one way or the other.

All this news of buys went through blogs, whatsapp groups, social media, print media, electronic media. There were investor camps, dhamaka earnings, multi bagged views, what all.

We were cruising till an ice berg hit. And Twitter was all about Titanic.

Immediately we saw and are seeing flash cards of one “negative” after the other:

1. China
2. Oil
3. Redemption by sovereign funds
4. Global markets
5. Concerns on Lack of liquidity with investors
6. Leverage
7. Rumors of long term capital gains
8. Fears of usfda on every pharma co
9. Fears of slowdown of consumer cos due to rural slowdown
10. Banking problems in psu- as if these were not known for months ahead- unless we chose not to even believe our own capable governor when he kept warning of this.
11. Slowdown in infra
12. Whatever as it all works in a contagion.

If my small world, a tweet found its way to several lacs of ears, now imagine the impact of all the giant tv channels, the huge network of Broking houses, the network of whatsapp and social media groups, the print media, the word of mouth spread of all this negative every passing minute.

Investor camps eager to catch the next big idea till December 2015 look like gas chambers. Get me out. How much fall is in place- have replaced the optimism. All in just a few days.

The cascading effect has created more chaos.

Each thing is being correlated to bad.

Don’t buy strong brand companies as they are expensive- (though all have become cheaper relative to December and have a history of wealth creation)

Don’t buy pharma as USFDA will strike soon and valuations are not in sync. (Till December it was a story of a secular bull run)

Don’t buy private sector banks like Hdfc bank or Indusind. Why? Oh the effect of Sbi and likes would son hit them too. And now some are more expensive than others. (By the way at any point of time in any sector, the best is always more expensive than others. The question is is the best doing well)
Sell stocks no matter what. Even if history supports gains for decades. Even though equity is the best class of investing. Even though buying in biggest disasters proves superior returns.

Interestingly it wasn’t one factor that lead (or is leading) the fall. We had a reason every day. Almost if we didn’t, we could have typed “bad news” on Google and found one and somehow co related it.

The effect has been a fall in scrips across sectors.

While it can be argued that some scrips deserved to correct (read 27/12 blog update: jaago investor jaago- froth in several second line stocks and the tweets on a blind froth in mid rung pharma and IT) the moot point is markets don’t spare even good companies in a liquidity exodus.

Hence even if one Broking house that I otherwise respect, got the sensex target right at 24000 odd, one forget even the stocks liked by the same Broking house were equally battered.

Picture this:

A consumer company well loved and believed to be all weather stock fell from 17000 to sub 10;
A branded food company that wasn’t plagued with a maggi sort of problem fell from 1700 to sub 1000;
An Internet co fell from 1600 rs odd to 400 rs odd;
A pharma co much recommended fell from 1800 to 900 while its smaller mid cap from also highly recommended just till a few days back from 108 to 38;
An automobile co that has been posting good results last few quarters fell from 3300 to 2200 odd; to name a few.

In the same breath psu banks, psu stocks including a recent offer for sale, metals, cement, auto ancillaries, mid caps, small caps, God knows what caps etc fell. Yet it seemed that the fall in this category was more than the fall in some of the examples I shared. Why?

…..because some of the mid caps and small caps had given good returns before falling vs some stocks that have seen a secular fall for the last few years. Mind you, even some of those in secular fall feature in long term wealth creation.

What does that mean? Why do we see the falls as doom and ignore the recent past of gains as a given?

Doesn’t it suggest that stocks off and on gain and correct and as long as the gains insure us from the pain of falls, we are fine.

Doesn’t it suggest that as highs, there is overdose of information “interpreted” as positives, while on corrections, we accept everything as an endorsement bias of negatives. Most of it just “emotions”

In the community of investors, reside many:

Some day traders
Some technical
Some short term investors (many)
Few long term investors

The last category get featured in books. Which are meant to be read. And learnt from. Why is it that these few have portfolio sizes that can leave many with their mouths open. Do you think these guys never went through falls? Forgot 24/8 just in 2015? The market was down some 6 percent in one day. But it was forgotten. Why? Cause things “eventually” looked up. multiple examples of a similar kind exist.

Suddenly there is no talk of bull market. Headlines read “we have entered a bear market”. But why? We don’t know. Just because we saw 2008 and just because market levels have come to some month lows- we so believe. Just as we believed that at the end of December we were in a bull market. In fact we thought we were well equipped to even know what phase of the bull market.

I don’t doubt there is some global nervousness. But in my view, not all is coming from true bad news. Some of it is coming post a good bull run (corrections are natural), but most just from a flash of 2008. Ppl fear the cliff of 2008 and thus are resisting buying when they are getting some fab cos at great prices. And more than emotions, it is the cascading effect of a lot of negatives floating around.

We talk all year on Buffett and Munger. Are they selling? Did they buy the last few companies in 2015 worrying of their destruction in 2016? Why are we not quoting them now but will when stocks rise to highs and we feel we were tutored by them. Do they analyze china by the hour? Can they? Do they check every day what fii and dii are doing? Or what others are doing?

Imagine you own a barrel that’s empty. It has the capacity to take in lots of water. Occasionally it will leak either due to an sudden speed surge of water being deposited or Occasionally some water will be lost to evaporation. Or someday you don’t feel energized enough to come to work to fill it. Some days you are so happy to see the water filling up that you have fun. Splash some water on yourself or friends and lose some water. Some days you drink the water as you are tired and thirsty but don’t fill it. As you know you can fill more over time.

You fill the water with a mug. The mug draws water from a tap. The tap runs and you fill water commensurate to the size of the mug as you cannot lift the barrel or drag it under the water. You have a limited capacity to fill it. Further many queue up with you for the same tap. As they all too have to fill their barrels. So some days you wait longer to get water. Some days your turn doesn’t even come and you queue up again.

Suddenly someone comes and says water will be obsolete. Without applying any logic the news spreads across. Few turn up at the tap. Many think it’s a lost cause. The queue has few takers. You lose track that your objective in the first place was to keep filling water. You know water has an unlimited use. But because of sentiments you chose to join the comfort of negative news.

Water here is your equity. The mug is your income that enables you to fill it. It comes in every month and is used by you to buy equity. The barrel is your portfolio. Your wealth. The queue is a bull market.

Ignore the negatives. Hundreds of years of equity investing teaches you- keep investing. There is nothing as a known known in markets. Prices are never static. Wealth creation is never a on and off game. It is a game of discipline. Some say we won’t buy a stock we liked at 200 at 100 now but will buy it when it bounces up. First it won’t knock on your doors to tell you: hey I’m about to rise. Many stocks hit limit up of 20 percent for several days when markets regain their vigor. You are ignoring at Cmp you can buy more for the same amount you would have spent at 200. More makes your net investment price lower. Even small incremental differences make huge differences due to compounding.

If you want to believe Buffett or Munger or Marks or even some of the smartest investors and fund managers , why do they talk of returns over a period of time? Why do some ignore noise when it’s loudest.

I do realize this article has come a bit boring, a bit too long. But it’s come from the heart as always. Wish you all great returns.

 

Caveat: not Sebi registered. Be safe, seek advise. Keep good company of people and believe in life.

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Introspection over a cup of coffee

Hi friends,

instead of a blog update this month, I was invited to do a guest write up for Dalal Street Investment Journal (www.dsij.in)

accordingly my thoughts on the market appear in the issue dated 8th February 2016, at pages 30/31. I think they have come out simple and well.

i hope my thoughts resonate with some of you in your quest towards long term investing. I look forward to your cherished comments.

standard disclosure: I am not a registered investment advisor. The views expressed are personal and out of passion. You are advised to consult with a professional or exercise due diligence.

happy investing. Enjoy the coffee and the thoughts.

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