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basant
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Quote basant Replybullet Topic: 2012 so far – The year of the Dirty Picture
    Posted: 19/Feb/2012 at 12:44pm

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


Edited by basant - 19/Feb/2012 at 12:48pm
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ameydesai
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Quote ameydesai Replybullet Posted: 19/Feb/2012 at 1:37pm
indeed basntji ......i was never invested in JP associates or Sintex Inds
rather in Dec/Jan - i had purchased Titan at 167, Tata global at 103  levels ..... i exited tham at 205 and 120 levels respectively
frankly speaking nobody knows - why L&T has suddenly grown from 1000 levels to 1400 levels and so has SBI ...... fundamentals are same as they were 3 months ago .... also no great policy decisions have flown in 2012 yet ...... i think it is better to sit on sidelines and watch such spurious rallies than burn your fingers unnecessarily..... i continue to make my SIPs in HDFC Top 200, DSPBR Top100, IDFC Premier equity and HDFC midcap opportunities. Also I have entered City union bank and IL&FS transportation networks with a long term view
 
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kmp_saij
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Quote kmp_saij Replybullet Posted: 19/Feb/2012 at 1:51pm
excellent write-up.
 
"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."
 
Above is an excellent argument. I am fully agree. 
 
 
Thank you very much Basantji.
Own whatever’s feared, shun whatever’s beloved.
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subu76
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Quote subu76 Replybullet Posted: 19/Feb/2012 at 2:03pm
Great post Basant Sir...
 
It's hard to avoid envy but one must try his best I guess
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rinkumalpani
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Quote rinkumalpani Replybullet Posted: 19/Feb/2012 at 3:53pm
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.
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Avadhoot
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Quote Avadhoot Replybullet Posted: 19/Feb/2012 at 4:26pm
(1) market is as market does

(2)This is the reason so-called market experts do the consulting work and don't go for proprietary trading only.
we often hear the cliche-"I dont have position in this stock but recommended it to my clients".

(3)Just the study of financial statement is not sufficient.One should have the conviction in his investment. In the 2008 market collapse one of my stock became one third of my buy price but I did not sell that because I was pretty sure that it shall bounce back (as stock was fundamentally analysed). Today that stock is almost double of my buy price.
Did I have the desired conviction in my stock ??

And the answer is a big ' NO'.

Had I had conviction in my stock I would have added further when it became half and subsequently became one-third.

(4) even so-called experts of the fund houses could not save the fund. A 2007 hero fund (even a famous MF analysis site had given it 5 stars that time) is today one of the worst performer and the same MF analysis site now assigns it a single star.

(5) one more thing is the sleep factor. HDIL and Andhra bank are trading in the range of 120-130.
if some one decides to buy 1,00,000 shares either Andhra or HDIL.(for a time horizon of 3 years)

With buying of which share you shall get better sleep in the night?

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manishwithted
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Quote manishwithted Replybullet Posted: 19/Feb/2012 at 4:27pm
Thanks Basant sir for yr enlightening article.

regd Liquidity , below is an interesting article from Prof Bakshi .

http://www.sanjaybakshi.net/Sanjay_Bakshi/Articles_files/Is_Liquidity_Important.HTM
Long term thinking improves short term decision making - Brian Tracy
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Quote luke123 Replybullet Posted: 19/Feb/2012 at 7:56pm

I think if JP stops here then your point may be valid but if JP goes back to 200??

Another way to look at it is there is close to 0 chance of Page going to 10000 this year but a reasonable 25-30% chance of JP going to 200 if the market maintains its momentum

The differnece is not between 40% & 75%. The difference is between 40% and a 1000% (in real ugly names).

The point to concede is there is no way of timing the bottoms and over the long term it makes sense to be in Titan than JP. The people who have made money in these stocks in this rally are the people like me who got stuck in them because they never sold them.
 
I have spent 4 miserable years owning Indiabulls. I might eventually make more money than consumer guys(Page, hawkins) but I would have been far happier owning Page than Indiabulls.
 
If the rally continues(a big IF), I think this might be the year of the UGLY where the UGLY companies make 400-500% while the GOOD ones make their standard 25-30%.
 
What say??
 
Luke
 
 
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