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basant
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Quote basant Replybullet Topic: Learnings from previous bear markets!
    Posted: 27/Jun/2008 at 11:36am

From my limited experience on  bear markets I try to give examples from the 2008 situation as it appears to me:

1) Sectors which move the fastest and the fiercest in the bull markets lose the most in the ensuing bear market.real estate, Infra, Power, financial services (brokerages, NBFCs), Reliance stocks.
 
2) Companies that are leaders in a bull market do not see their prices come for years in the ensuing bear market. For example ACC and Tata Steel in 1992 took a decade to see their old prices. Other 2nd line darlings like Lloyd Steel, Kakatiya cement, Swaraj Mazda etc are nowhere to be seen. Unitech and DLF could esist but I would like to see companies like Parsvanath, Purvankara etc many of whom will be wiped out. In 2000 we had DSQ, HFCL, Silverline, Pentamedia etc
 
3) People look at how far it has fallen from and start averaging. Instead of this they should look at the valuations.
 
4) All companies with questionable accounting practices wash their dirty linen as markets fall. So companies growing at 100% CAGR could suddenly start growiing at 40% in a few quarters and then finally show degrowth.
 
5) Point (4) happens because it becomes too costly for the management to keep cooking books when prices are not responding to supposedly good fundamentals in the short run.
 
6) But the market cap of such stocks will evaporate long before the companies start showing bad results. It happened with Infy in 2000 as the company grew more then 100% for 4 quarters and the stock price lost 80% in about 18 months!
 
7) Bear markets do not distinguish between blue chip and penny stocks. M&M fell 83% in 2001 from Rs 25+ to Rs 28; Infy Wipro,Satyam can be called as part of tech meltdown but Tata Motorts fell from Rs 300 in 1999 to Rs 70 in 2001!
 
8) It pays to stick with quality companies/sector leaders in non cyclical industries.
 
9) All new bull markets have new leaders because at every price you will have new sellers in the old favourites stocks which people think that they should sell just because they are breaking even.Cement, Steel in 92, EOUs in 94 and tech in 2000 never had it so good for them again.
 
10) I have seen two bear markets one in 1992 and another in 2000 and the portfolio destruction is maximum. People who make money are the ones who a) Cut losses b) Stop averaging c) DO not look at how high the stock has fallen from d) Patiently invest in companies whose EPS is bound to grow.
 
P.S: People who buy during the market are the ones who make a killing in the next bull market but what we buy is more iomportant then at what price we buy?Smile
 


Edited by basant - 27/Jun/2008 at 11:38am
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prashantmohta
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Quote prashantmohta Replybullet Posted: 27/Jun/2008 at 11:51am

but the sensex stocks has fallen more than 60% and they are not comparable to dsq, himachal etc.so eventually these businessess are not going to shut down.

now what should we do when all sectors are down at the same time except pharma and fmcg.we have to pick among these sectors to sustain.if last leaders will not bounce back then u mean to make money thru virgin industries because u have said that what has happened in west will happen here.
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Quote prashantmohta Replybullet Posted: 27/Jun/2008 at 11:55am
if i dont touch or not in the ring of cylicals then i have no other options to move into nbfc=inflation will kill them.
                fmcg=they dont perform or more or less for value investor.
               pharma=one should have generic knowledge to invest.
 
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Quote sun_raj Replybullet Posted: 28/Jun/2008 at 2:14pm
basant sir,i enjoy u mails immensely.i will appreciate ur best picks now as mkt has fallen deeply where now all horses & donkeys are being treated alike.tks in adv.
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Quote basant Replybullet Posted: 28/Jun/2008 at 2:51pm
Originally posted by prashantmohta

but the sensex stocks has fallen more than 60% and they are not comparable to dsq, himachal etc.so eventually these businessess are not going to shut down.

now what should we do when all sectors are down at the same time except pharma and fmcg.we have to pick among these sectors to sustain.if last leaders will not bounce back then u mean to make money thru virgin industries because u have said that what has happened in west will happen here.
 
Actually FMCG and Pharma is not the best place to be in for the long term. Temporary movement of money can be done but then how would you know that the markets have bottomed out?
 
In this era of private equity I can't find any industry that wil be given away cheap by the promoters. The big money will be made in buying companies growing at 40% and available at a PE of 10 to 12 times current year!
 
Originally posted by prashantmohta

if i dont touch or not in the ring of cylicals then i have no other options to move into nbfc=inflation will kill them.
                fmcg=they dont perform or more or less for value investor.
               pharma=one should have generic knowledge to invest.
 
 
We are already seeing the signs of NBFCs feeling the pinch (punch). Look at Indiainfoline, IndiaBulls, Rel cap etc etc.
 
Inflation will squeeze the customer and increase delinquecy also buying an NBFC at 5 times Price to book puts it under some stress!
 
 
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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Quote bassein Replybullet Posted: 28/Jun/2008 at 2:56pm
Basantji and Seniors:

What is your opinion about investing in "dividend-yielding" stocks at this juncture? The magazine "Dalal Street" had a list of companies which have been paying dividend regularly for the last ten years.

Would that help tide over the uncertainty of which stocks will partake in the new rally, however far away that is?
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Quote basant Replybullet Posted: 28/Jun/2008 at 3:06pm
Let me share this experience with you:
 
In 2001 -03 I had set myself a target of having a portfolio dividend yield of 3%. Things were tough in those days and dividend did protect downside by acting as a floor.
 
In this connection I held on to Hinduja TMT and Trent which had an yield of 3% - 5%. I later discovered that these were the worst performers in my portfolio.Cry
 
Dividend yield protects the downside does not guarantee the upside and if you buy a second grade PSU Bank the downside protection isn't guaranteed also.
 
There are several companies that have moved from a yield of 3% to 6% and can ultimately go to 9%. That is the fear.Ouch
 
Markets pay for sustainable growth and if dividend is the objective one should be in debt!
 
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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Quote bassein Replybullet Posted: 28/Jun/2008 at 3:41pm
Thank you Sir for your prompt reply. Meanwhile, I was reading your post on Indraprastha Gas. Thanks for that as well.

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