It is during the period of volatility, the period of sharp pullbacks in the midst of a mega bull run that your heart races faster and you dwell even more on what you own and what’s going to happen to them.
Everyone enjoys stocks going up. It’s the simplest truth of stock markets. Even more so, everyone hates to see their stocks going down, especially when they had finally moved after a long period of no returns. Now the very nature of markets is that it fluctuates on both sides. On a longer time horizon, good stocks go up and bad stocks go to zero.
It is pertinent to mention that in a mega bull move, in the rallies when your portfolios double or triple in less than a year to year and a half, sharp 10-15% correction is essential. It takes the froth out of the system, allows stocks to get out of the limelight and the feeling of calmness prevail. I remember between August 2020 to March 2022, my portfolio went up over 3.5x! That obviously was punctuated by a lot of sideways months, months of negative returns to weeks of mega returns. You sometimes make more in a week than three years in a Bull Market!
A good portfolio tends to go down lower than the markets in bad times while going up faster than the average during good times. Over the next one year, between March 2022- March 2023, my portfolio was down 25% and during the last week of March 2023, I was scared that the bottom was soon to fall!
As keen an observer I am to the noise of the crowd, I also observe my emotions closely. Having been around for more than 6 years, I do not generally take the daily price fluctuations too seriously. I however also felt a sense of adrenaline till last Monday when the portfolio went up 25% in less than 2 weeks. So I also grew worried that maybe the near top has been made. The correction which we all waited for finally came and being down 5-6% from the top feels alright.
In big moves, you don’t get more than 10-15% corrections in leading stocks post which they consolidate for some time and then breakout on the way up. BSE to my mind will spend a few days around this 1200-1300 mark before taking it out onwards to at least 1600-2000. It has been the best performer but also been the best behaved performer in this rally. On no days did it go circuit up or down; on no days did you wanted to sell but couldn’t or wanted to buy at a price but couldn’t; on no days did the entire market came out and praised you not there have been reports raising price targets to the moon. Remember IEX, IRCTC, DMart or even Eicher before they stopped? Everyone owned them, everyone was pressurised into owning them and the media was obsessed over it. Every expert came on tv and said he discovered Eicher in 2010, the other fellow claimed he discovered it in 2008 and one fellow claimed he bought it in 2005. There were funds who wanted to be associated with this idea- just like everyone was buying chemical stocks in 2020-21.
I was once wondering what a decent price target for BSE will be. Now this is extremely subjective for it has already been a huge winner for me but still, it’s my blog so bear with me.
One, I deal in market capitalisation and not price of stocks. So BSE today is $2B plus, just around 16-17k crores. It earlier wasn’t a part of any indices, not even nifty small cap so no fund flow went into buying BSE. Only an occasional MF scheme owned it and most institutions ignored it. BSE until six months back was valued at around 5k crores so it wasn’t even a small cap stock. Now at $2B, it is suddenly an error if the MF house doesn’t own it because it has outperformed the market by a distance, further, since nobody owns it substantially, an active manager can buy it and claim to have beaten the market. This fund flow alone will be good enough to support the price substantially.
Once the price hovers around and over this mark, it gets included in small/mid cap indices so the passive flows kicks in. Now the funds will have to buy irrespective of the price because it’s the mandate. This creates a rush between funds and institutions and the final factor- the scarcity premium comes in. BSE has 13.5 crores shares in total. So the moment someone comes in and wants to put in an order for 1lakh shares, the price moves up because there is not much shares in the markets. People like me who didn’t sell it at 800 will not sell it at 1600 because we know how this game is played. This is how the scarcity premium gets factored in and big institutions have to buy. This is how Bajaj Finance went 300x in last decade. The first 5-10x was genuine, the next 2-5x was initial fund buying and the last 10-20x was big institutional buying.
So I am sure by the end of this decade, BSE would be a five digit stock. It has been a ten bagger since Covid. Another ten? Who knows!
Life is all about Compounding! 