When I started investing as a young impatient, restless and a (self styled ) astute & logical investor I wanted reasons for everything that the markets did. It took me several years and plenty of failed opportunities to understand that in majority of cases markets moved first, reasons followed later while debates continued thereafter. This sequence of events continues even today where market variables have increased in terms of news points, the logic has become more precise and hard-hitting with more information from the TV and the internet. All these has however not been able to change the end game for the investor which is�Markets move, first reasons follow later�.
For someone like me I have given up assigning reasons and levels since 2008. Benjamin Disraeli said �What we learn from history is that we do not learn from history�. This applies to pinpointing reasons for short term market movements and�erronously assigning credits in the �I told you so� mode. These self-styled forecasters mistake the randomness of events to self- generated intellect. Our markets are passing through a similar phase. We have been assigning the movements to various reasons based on the recency effect and when there is no recency element we put the blame on the Govt. for its sheer inability to govern or in the more sophisticated language �governance deficit�. How many of us wanted to put failure of the Govt. to undertake second generation reforms as one of the primary reasons for our stock market to go down and when the Govt finally plunged in hitting two birds with one stone (FDI in retail and Companies Bill) the markets obliged � by sliding 150 points the next day. Basically the markets seem in no mood to listen to any good news and wants to catch all the bad news this is the classic feature of a bear market or as some eternal bulls (me included) like to say a bearish phase!
If the trend does not reverse very quickly then the bullish times seem some distance away. There are so many stocks quoting at 2 year lows and several at 2008 lows.The underlying reason is that markets want to go down and are going down. How else can you explain scores of companies trading at PEs of 4 and 5 times, RoE of near 20% and a yield of 4%? The stock keeps going down and the yield keeps looking better but one has to bet on them at the right time. Somewhere down the line we will be able to make that quick money buying the beaten down names but personally I would attempt those opportunities only when I�m sure of downside protection. If in the event we miss some so be it because we need a 100% gain to make up for a 50% loss and the probability of doing foolish things go up when a person is on the losing table � he gets desperate.
In this backdrop even though I consider myself a part owner of a business (more refined word for a long term investor) I have started to pay more attention to prices on the screen and the emotions on the street when it comes to buying cheap stocks. As markets fall the cheap stock becomes cheaper and when they rise the costly ones become more expensive. One single data point of analysis is to look at whether the stock you own is nearer to the 52 week high or the 52 week low. In either case the line of least resistance as Jesse Livermore wrote about one hundred years ago acts as a magnetic force � and that force is in complete contrast to what a value investor thinks.
The call of the hour remains to stick with fundamentally strong stocks rather than try to bottomfish for the beaten down names. The beaten down names look cheap but are devoid of earnings visibility. We will ride them when it seems that it is fit to ride. At 20 times trailing the human mind choses to think of L&T as a cheaper stock to another alternative with more predictive earnings just because L&T is down from its 2008 high. The fact that there is so much of an issue with new projects, falling capex, high interest rates does not bother the investor because he is more focussed on buying what has come down rather than focusing on the twin matrix of value with price or more importantly reality with perception. One stock (NCC Ltd) is down to November 2004 levels. In the interim it became a ten bagger!!!
It pays to lose some opportunities in life rather than be brave and ride against the tide for no martyr has ever collected the gallantry award himself.
This is Super article.
pick stocks with widemoats,good brands,zero debt and good dividend
buy in SIPs every month (it could be just 1 share) and stay for long time minimum 10 years
avoid borrowed money and put only money that you dont need for 10 years
I practice what I say for past 3 years,my portfolio have given me 50% return even in a bear market
nambi
Good observation.
Stock market is driven by sentiments.
Accumulate some stocks.
Creat sentiments in favour of the stock.
Make people feel greed to buy them.
Sell your holding to the motivated geedies
and than reverse the process .
But..... this can be done by big money only.(The involvement of company it self in driving the stock is also an interesting aspect in the matter)
The people with big money need not have knolege of real fundamentals.(That is why the so call real jems of yesterday becomes KACHARA all of a sudden )
Konwlegdge of fundamentals alone has hardly rewarded investors. Some times riding the sentiments have rewarded batter.
This is the stupidity Mr. Market has.
excellent sir, hats off !!!!!!!!!!!
very educative & insightful article sir,
i always feel enlightened whenever i read your articles, keep up the charitable work!!!
Thanks Basantji for insightful article. reating your article, few thoughts came to my mind. 1) many times Market moves first because institional investors (with access to previlaged knowledge which we mortals don't have)move it before that knowledge is available to all. example. S&P 500 suddenly drops 5% on Friday. S&P downgrades USA AAA rating after maket closes on Friday! GSPL GAIL, IGL all defensive names drops suddenly by 15% Today, I read in economictimes that drop is because concern of reducing gas output! I think that's why individual short term trader mostly loose in this game. As a long term investor it doesn't matter as short term fluctuations could provide opportunity to us for long term investment. 2) Market follows path of least resistance. On thinking about this, share price on a particular day depends upon demand and supply on that day which is largely created by institutional and individual short term traders. In established bear market speculators are more likely to make money on shorting stocks and outnumbered bulls more likely to loose money. It creates positive feedback for bears and they keep shorting until valuations no more makes sense and it can't go down any further. then the whole process reverses as path of least resistance is upwards now.
I think this correction will be just a price correction lasting 1-1.5 yrs and not a major time correction mainly bcz when Sensex started current bear market, it was not too over valued. Its was @ P/E of 22-24.
The cruel bear market of 1990s where Sensex didn't go anywhere for 10 years was mainly bcz the valuations were overstretched @ 45 P/E in 1992. And it took that time for the EPS to grow to that level where the Sensex would be fairly valued.
The same happened with Nikkei which is in bear territory since 20 years !!
It was exhorbitantly priced in 1989 at its peak and is now valued at some 18-20 times.
So this is my gut feeling that the pain may last for 6-8 months more.
But again there comes a thought of Dow Jones in 1965-1980 where it didn't go anywhere for 15 years due to high interest rates and high inflation. And India is poised in the same scenario of high Interest rate and inflation.
This my inference from History but I may be wrong bcz its rightly said
The only thing we learn from history is that we never learn from history
[QUOTE=rohit1889] The only thing we learn from history is that we never learn from history
[/QUOTE]
The meaning of the quote is that we are supposed to learn from history but that we DON'T learn from history and not that we should not learn from history.
[QUOTE=basant] [QUOTE=rohit1889] The only thing we learn from history is that we never learn from history
[/QUOTE]
The meaning of the quote is that we are supposed to learn from history but that we DON'T learn from history and not that we should not learn from history.[/QUOTE]
Apologies for my fooloshness!!
Basantji, isn't my statement valid about time correction?
In past major time correction was seen when the markets were exhorbitantly valued. Another example will be dotcom bubble. P/E was way too stretched and thats whyNASDAQ hasn't returned to that level yet after 10 years. This is indeed time and value correction.
Posted on:11/27/2011 7:23:48 AMbasant
[QUOTE=vikskukreja] Its an insightful article. But there are few areas where my thought process differs...it will be among these distressed cos that some winners will emerge and some multibaggers will be born...and the one who now does indepth analysis and takes calculated risk will accumulate wealth over a period of time...[/QUOTE]
Page, TTK, Hawkins, Titan were not a distressed company in 2009, it still went up 8 - 20 times, Voltamp, Thermax, Blue STar were distressed bets, they went up and then came down and have performed almost in line with the Sensex.
There are no rules in this game.
[QUOTE=siloni] hats off to you basantji ,for twin reasons,
Even after basant s corner,teddies are not left high and dry.[/QUOTE]
Basant's Corner is an added feature to TED it will have its own advantages but not at the cost of the forum.
[QUOTE=subu76]
On a slightly different note: It's really heartening to see high debt companies, bad businesees, shady business culture companies getting killed.
That is good for serious investors. They get to differentiate themselves from the crowd.
[QUOTE=conservativeinv] I would differ with you in one respect - I believe in the theory of price and time correction.� We have seen the former in 2008 and now, but have we seen the latter?[/QUOTE]
the time correction should be awfully painful.
[QUOTE=FutureBull] wow Basantji!! I loved the logic, clarity of thought and your writing style. Thanks very much!! I do remember when you wrote that "it is time to bet on economic cyclicals right at the bottom of Feb-mar'09". I am just worried that we do not have any Lehmann event yet but market is down by 25% and currency 20% from the top. We should be fine if we do not have any of the events of that type again. [/QUOTE]
That is the hope.