Sunday Chatter!

Isn’t this been a phenomenal run on the markets- Nifty is finally above the 20K mark and Sensex also made a new life high of almost 68K. In this scenario, why are we so nervous?

People who have made extremely large sums of money are horrified with the potential drop in their portfolio going forward- every expert and his cousin on TV, Twitter, print is predicting a mid cap correction. People saw what happened on Tuesday when a lot of these stocks went circuit down and are largely down anywhere between 10-25% from their peaks. People who were lining up to buy Railway and Defence stocks are now afraid if the Winter is Coming!

How I see this is the other way round. My investing beliefs have cemented themselves on reading the psychology of the crowd- read what’s written or is being spoken about the most and try and avoid doing what’s the safest advice. If most people are worried about valuations being too high, we are nowhere even close to the top. Nobody complains while getting rich. If people are worried that their portfolio stocks which have gone up 10x in three or two or one year are overstretched, they’re not enjoying their riches and this is the most important evidence of a bull market still maturing.

When people make money hand over fist, they cry out of joy; they don’t read negative news in the newspapers and get scared. When stocks correct when everyone wants a correction, it’s mostly not going to last. Do you remember how Adani stocks did when they corrected sometime in 2021, circuit down 30% before going up 4x towards the ultimate top. If a stock is going to go up 10-20x, it is first met on its way up by the non-believers. They want to deny the run. Oh it’s all operators, this story is false, etc. Then are the skeptics- the valuations are too high, the company isn’t making as much money as is being told, etc. In the end, everyone is a believer- the stock is the greatest gift to mankind. We are still in the skeptical zone for most stocks.

The experts, the MF walas can’t believe that they didn’t own a BSE which has gone up 13x since Covid and now can’t justify retailers outperforming them by a margin. They are not sure how they can claim to have not bought PSU Banks and Stocks when they have made decadal tops in last one year. So the ecosystem somehow wants to take stock out of retailers hands and then turn around and prove their wisdom in discovering the might of a PSU Bank or a BSE or a Cochin Shipyard. Most experts are index-huggers who buy what’s rising and then come out with a backtested study proving that they knew this ten years ago and how they are the true sons of Buffet and always buy stocks for long term- decade plus.

The funny thing is they come on air and talk about discovering a stock like NTPC, or a Dr Reddys or an ITC as if they had founded the company. Most large caps go through periods of under and over performance and if you are smart enough to hold through the troughs of pessimism, you’ll outperform by a margin.

So my two cents on this are- do your own research and ignore the market noise. These experts are only good for entertainment value- to have a sense of the crowd and nothing more.

Look at that joker Saurabh Mukherjee- he started with Ambit claiming to have discovered Eicher and Page in around 2017-18. He then turned around and sold this story of millions of mothers feeding their babies Nestle baby milk powder and how HDFC Bank and Kotak will outgrow everyone. When that bogey failed to run, with HDFC Life and Kotak and Nestle and all others underperforming big times, he began to punt on illiquid small stocks which only went up as long as someone was buying- classic operator style. If their are only 100 shares traded, and you buy 20, that the stock will go circuit up is no rocket science. It went on for a while till market began to correct. He then sold ITC only to see it double in a year. Now last I saw one of his cofounders telling why the market is wrong in valuation of his chosen few. He also began a disclaimer of his parents money being invested in his funds. The guy who began as a coffee can investor- buying and holding for decades is now down to running a quant fund- basically a momentum trading strategy. Like Modiji says- hypocrisy ki bhi Seema hoti hai.

There is one more thing I want to discuss- how to book profits. Leaving money on the table is the biggest problem we face while growing as investors. If you believe in the story and it is playing out over time, selling at the first double or even a subsequent double will possibly change your car but not your house. If I had sold BSE when it went up from 400 to 800 or even to 1600, I’d have missed the run to 4000+. If you had 100 shares, and you made 40k when you bought at 400 and sold at 800, or you made 120K selling at 1600, you missed 2.4 lakh by selling. That is you sold at a 4x only to lose another 6x you could have made without investing another penny.

Not everyday you get a stock which can go up 10x. And only once or twice in your lifetime investing career so you get a potential 100x stock. So if you’re looking to book profits, calculate not how much have you made but how much are you leaving on the table.