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.
" Those who have knowledge, don't predict. Those who predict, don't have knowledge' - Lao Tzu
This stuff is really awesome man! I really enjoyed that. Thanks for sharing this precious post!
When other countries Central Banks talk up market sentiment, ours is doing the reverse both in action and speech.
[QUOTE=rohit1889] .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 saidThe only thing we learn from history is that we never learn from history
[/QUOTE]
Do you know what kind of stocks fared well during that time period(1965-1980)?
Amazing article Basant Sir,
"I told you so� mode...a self-styled forecasters is something which is happening to me now a days...as i am young impatient, restless and a (self styled ) astute & logical investor as u were in ur early days....
People like u Sir are the source of inspiration for guys like me...
Thanks
Ayush Prem.
Sir,
RJ seems to have exited in this stock with a cool 10 bagger.
I am totally agree with what you said,but my English is poor, sometiomes I don't know how to express my feeling,I just want to make some friends who can help me in my English and share the happiness with each other.
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Truely Said. Time has come to implement it when everyone is talking of crisis all over globe. Make your portfolio its high time now.
I love doing Technical Analysis too to make entry exit and catch Primary Market Trend beside stock selection on its Fundamental.
I beleive our market has bottomed out and Sensex not likely to break 16000/15000 Level also as per my time analysis Sensex Likely to see 25000-30000 Level in coming 18 Months ( Probability 75%)
Happy Investing.
Posted on:11/29/2011 1:42:24 AMbasant
Yes, it makes complete sense but the difference to making money in this market is knowing not only what will happen but also when it will happen.