A horrid day at the Dalal Street; every wire and cable company caught fire and left none of us any safer. The BSE rally from 5000 to 6000 is now over and its back to 5100 in a hurry. The feeling of fear and misery is pervasive and when even looking at your portfolio takes courage, you know that the shoulders are down and moral lost.
This is humbling for all bulls including me who have claimed that the best time to buy is now and it may even be. The problem is that when every rally fails and the shares which shouldn’t have fallen 10% have fallen 40 and more, it hurts. The name of the game is patience and everyone is left licking their wounds.
I have had a feeling since the last couple of weeks that the market is ripe for a turnaround but that view has failed to find any favour with the market. This has taught me an invaluable lesson- timing in market is next to impossible and trading is injurious to health, especially on a well formed logical view because when the markets wish to punish you, all the logics fail and the technical and fundamental indicators are out of the park.
The point of solace is that I have never traded or wish to trade so the only thing which is down is my moral and that too because my view of a reversal hasn’t panned out. Well, there is nothing called a hope trade in the markets, isn’t it.
So what we are seeing here:
If my reading of stock market history is correct and with the overall belief that we are still in a structural, decadal bull run whose crazy end game is yet to play out on the upside, we are somewhere at the absolute panicky bottom where every bull is down and out, licking its wounds. Everyone, including myself has tried to buy on the way down, buy the dip as they say and have seen the prices fall another 10%. We are left wondering as to what the hell is wrong with us that we should have waited for some more days. And when the bulls are so badly beaten that they stop to add any fresh positions on the upside, voila, who’s left to be sold to.
So looking at my own psyche, when I was petrified throughout this week and especially today to even look at the screen; I guess we are very close to the point of absolute capitulation. Well, the thing is Ive said the same thing for the past one month and all of you will accuse me of being a broken record but in my humble opinion, the fall cannot sustain anymore. It may still fall another 5% on index, 10-15% in stocks but the more it goes down, the more ferocious the rally on the way up will be.
We might never see some of these prices again and one to two years later, those of us who are looking foolish to ask all of you to buy whatever and whoever you can, will be richer beyond belief.
There are of course strong sector rotation in play. Every wire company was on fire today, thanks to Ultratech’s announcement of getting into this business. This is on lines of the paints business wherein Birla and JSW have screwed up the margins of Asian and Berger paints. It was bound to happen, one way or the other and it happened today.
My take is that for individual investors, all one should do is to buy companies which have reasonable valuations and comfortable balance sheets and let the markets do the rest. I have never been a believer of catching the fads so have not had any exposure to Polecab or Deepak Nitrite or Pharmaceuticals or cement or the tomato or the likes. Yes, it is still possible to make a lot of money without having any exposure to the latest market fad.
There is a fund manager, Chuck Akre who runs his fund on similar lines wherein his top holdings include Mastercard, KKR, Moody’s & Visa. He runs a very concentrated fund of financial firms, something which Ive done organically on my own. By the way, ICRA is the Indian subsidiary of Moody’s and is a new holding for me.
An individual investor can own less than 10 companies, with good dividend yield and still make a hell lot of money, especially if the fund size is less than $10 M or close to Rs. 100 crores in India. The key to investing is to be very sure of what works for you and what you are comfortable owning for the next three years, with a lot of inactivity along the way.
Like for example, I have a friend who buys Pharma a lot and I on the other hand, hasn’t owned any Pharma since exiting a very small position in Sun & Lupin in 2018-19. So even if I get that very cheap, I might still like a mutual fund company better.
What works best for me is a company with zero debt; great profit margins; very neat and clean dividend policy- you do a EPS of 100, give me a dividend of at least 70 and even better, raise that every year; and of course something which is aligned with the idea of a richer India. What I think is that in today’s India, every Billionaire or a startup founder wants to own a piece of India’s retail/ capital markets. So all the companies want to open a mutual fund house or want to bring groceries to you in 10 minutes. I don’t think that the consumption theme has one or two players I can bet with the comforts of hefty dividends so what is left is the financialisation theme.
What I am trying to say is that if you can simplify your process and become part owners to businesses which will grow over time, you might be very wealthy in the process. Instead of trying to trade in and out and owning and not owning metal or Pharma or oil or quick commerce will not take you very far. Trying to catch every swing on the up and being able to get out in the nick of time is impossible.
Regarding the fall in portfolio, well that’s the nature of the beast. If you can’t stomach a 20% drop from the top, every year or two, you don’t deserve to make 3x in three years either.
Remember, the most money is made by people to bought and held and did not so much for a long time. Everybody else was lost in the noise. This view of selling small caps and buying large caps or gold or this and that is for someone who has a family office and is trying to protect his wealth. For us who are trying to first get rich, the only place is equity and that too in owning pieces of great businesses which you were lucky to identify and simply held for five-seven years.
Every stock market downturn is marred with pessimism and sadness. Everyone who is now asking you to run out of the market is going to say this was the best time to buy. Don’t forget, people who now say Covid was fantastic time to buy were petitioning to shut down the Stock Markets! Nobody, not even a single person I remember advised to buy in March or April of 2020. So all these experts are nothing but salespersons, who are only trying to sell you their PMS products. Read a lot of stock market history which will keep you in good staid in times like these. Bottom, I believe has been made but I can very well be humbled badly tomorrow!
Disclaimer- The views expressed in this blog are personal opinions and are shared for educational and informational purposes only. They should not be considered as financial, investment, or legal advice. I write primarily to document my own learning and thinking process. I am not a SEBI-registered investment adviser, research analyst, or financial influencer, and no part of this blog should be seen as a recommendation to buy, sell, or hold any security. Please do your own research or consult a qualified professional before making any financial decisions.
Life is all about Compounding! 