The rally this year has taken a majority of participants by surprise. The general feeling on the Street is one of dismay and disbelief the exact ingredients that make the markets go higher. However the peculiar thing about this rally is that the beaten down names(irrespective of business fundamentals) have gone up the most, This rally has not looked at cash flows, earnings, dividends, growth, management so anyone who looked for reasons in this rally hasn�t found one � except that the ones that went down hard rebounded the most.
In any case the ones who have latched on to the beaten down names have a few critical questions to answer for themselves.
1) If I was bullish on Jaiprakash or Sintex could I have waited for Rs 60 and Rs 50 or would have invested into it well before that and have just seen a ride back to the surface after remaining underwater for a few months?
2) Assuming that I caught the bottom what percentage of the portfolio could have been bet on such names for wealth creation with risk management.
3) What was the likelihood of staying invested in such names for the entire 65%- 75% of the rally from the bottom and not cashing out at the first 25% of the move?
4) When is it proper to exit such names as with these companies we need two correct decisions �the entry� and �the exit� whereas with secular stories we need just one correct decision �the entry�.
How-ever it is not just the �dirty� names that have done well. Companies like Titan, Jubilant Foodworks, TTK and Bank of Baroda have appreciated by between 40%- 60% from the lows. Given an option between making a 75% in Jaiprakash and a 55% in Titan it is clear where an investor would like to bet. Such betting is important not because we make lower return in a Titan but because we can put more money to work and in this market the size of return matters more than the speed.
In pure market terms it does not matter whether money is being made in a Reliance Power or a Bata because money has no colour. The only concern is that the dirty money has a greater probability of disappearing a risk that all investors face irrespective of whether they are in the market for ten months or thirteen years!
One of the most debatable aspects of investing is that when people do not understand and cannot ascribe reasons to stock price movements they get the liquidity argument in. Can there be any movement in asset classes without liquidity? All asset inflation is a result of liquidity infusion as all declines are explained by removal of liquidity. So trying to justify all stock price movements through the liquidity argument is like saying there are more buyers than sellers and vice versa.
........... continud on Basant's Corner [QUOTE=rajnsharma] Whatever little I have learnt in my small investing phase of my life, I have learnt two simple things;
1. An investor must be an eternal optimist.
2. One must buy companies, not markets.
Raj[/QUOTE]
I liked your comment, sir.
This is exactly what I have learnt also.
The start of a rally generally begins with beaten down stocks (and not stocks like Titan/Page) as there is perceived higher margin of safety in buying a beaten down stock. One may, rightfully, buy a metal company's/bank's stock quoting at close to or below book value than a FMCG stock which is fully priced (at least not hugely mispriced in different parameters, so there is small margin of safety in buying them, e. g. TTK Prestige/Page). would you like to buy a beaten down HDFC or Yes Bank than a Page Industries at 30-35 PE? Here, in this rally, even Tata Motors and Yes Bank have outperformed the Sensex and not only JP Associates (although best performer probably is Reliance Infra).
What has happened is that a lot of traders expected the index to go lower and lower on the back of Index heavyweight stocks, and went on selling/shorting them and in the process deep value emerged in those counters.
This has happened earlier also, and surely will happen again.
As regards the market expectations, there is optimism about rate hike cycle and inflation peaking, UP election results might change the balance of power at New Delhi, and last but not the least, the Greek situation.
As regards the last, I always maintained that Greece would not be allowed to default by US and Germany as the politicians would dread at the prospect of another recession, specially when they will face the electorate in a year or so. So they would, (like everyone else, as it's only human) kick the can down the road and there would be some haircut for the bondholders and a European QE. The GDP of Greece is not so huge so as to arrange the cash for the bailout, although, Italy, France and Spain are different matters because of the sheer size of their economies.
If the rally continues, which is likely at this stage, the leadership may change from the beaten down names, as, after some time, the valuation argument will not hold water.
[QUOTE=rinkumalpani] Agrre sir.This was a wonderful opportunity for people to buy almost anything to get gud returns but such opportunities come once in a while. The only thing which would have led one to buy these stocks would be either experience or luck .But the hardwork that goes into identifying potential multibaggers to the tune of 5-10 times in the next three years irrespective of markets and nifty behaviour based on fundamentals and technicals will definitely multiply wealth in the long run.I have always believed that no bull run is over unless some shortsellers lose heavily and looking at the market behaviour,It seems this might have been a trap. Short kaRney walon key kapdein utar gayein hongey.[/QUOTE]
I am so happy today
Marc uncle predicts a massive fall
http://www.moneycontrol.com/video/fii-view/ems-likely-to-underperform-barring-few-exceptions-faber_690183.html
[QUOTE=excel_monkey]I am so happy today
Marc uncle predicts a massive fall
http://www.moneycontrol.com/video/fii-view/ems-likely-to-underperform-barring-few-exceptions-faber_690183.html
[/QUOTE]
I do respect Marc for his views..he does more for passion for equities. He has amazing accuracy as far as predicting these market movements are concerned. But this doesn't mean everything would go down.
I think this prediction like predictions in general have 50-50 chance of working.
This time like most of the time Marc Faber got it right. Look at the extent of fall everywhere.
I recently came across your article and have been reading along. I want to express my admiration of your writing skill and ability to make readers read from the beginning to the end. I would like to read newer posts and to share my thoughts with you.
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Posted on:2/20/2012 11:42:04 AMmunger
Can someone please explain why Sintex is not a good stock to consider for a long term investment.
Past record indicates volatility but consistent returns.
Thanks