Sell, Regret and Get Rich

The title is borrowed from one of India’s successful yet recluse investor, Anil Goel who described it as his guiding philosophy in one of his rare interviews. What he mean by that is when the market goes up, he likes to sell his holdings and raise cash over time and when it rises further, he regrets on missing out the gains but in the end when the market collapses, he has enough cash to buy at much lower valuations which is how he got rich.

So why am I beginning the year with this quote? The market isn’t going up and we aren’t seeing any gains to book so why this title? Well, the reason is, for the first time since Covid crash, we have turned extremely bearish! Yes, for the past nine years that I’ve been in the market and especially since the Covid lows, I’ve not been this bearish and thus, the post.

I.              First, the reasons as to why do we think something is wrong with this market:

1.     Geopolitics- 

I do like to read books on various subjects and was in the middle of a book called “Great Power Games” by Shri Vikram Sood, ex Chief, R&AW when Trump took out Maduro in the first week of this year. This is one book I can’t stop myself recommending enough to all of you so please grab a copy and read it for yourself. The crux of the inference which the author has drawn for India is that we are at a point in our history when no great power would want us to grow any further, doesn’t matter if they are our friends or adversaries. If we grow beyond the $10 T, we will be so large that nobody will be able to dictate any terms to us and thus, the reason why the US is putting tariffs on us for buying Russian oil but not on China is that it can. Beijing has grown too big to be messed with already. Coming to the crux, he predicts a world where the US would like to throw its dwindling hegemonic weight more on us wherein we have to strike a balance with China to survive even though even the Chinese aren’t our friends either. You see, there is nothing easy in geopolitics and thus the reasoning.

Now you hear Ajit Doval recently talking about how India has sacrificed immensely to reach where it is today and why a wrong move can take us backward and how we are blessed to have a strong leadership today. 

 

Friends, Ajit Doval is a spy and spies do not talk unless they have to convey something to someone and this message wasn’t for the young students he was addressing then.

My hunch is that the US will take Greenland in some form within a year or two and then if you imagine the world map- taking greater control of Panama canal earlier, taking out Venezuela and now the Arctic route, the world is clearly being divided in spheres of influence. Also, with NATO all but abandoned, even the Europeans have their asses on fire and that’s why you se sudden EU-India FTA, German chancellor desperately trying to sell us their submarines and the bumper order for additional Rafaels from France. It’s all connected!

The main fear for me isn’t Iran or Antarctica but Taiwan. We all know that there have been so many false flags on Taiwan that everyone believes that China might make a lot of noise but won’t do anything but my fear isn’t a full prang attack but more like a naval blockade and tough posturing which is enough for one thing- breakdown of global supply chains of Semiconductors. The global market is rallying on the back of AI and the bull run is one of hardware whose very heart sits in that tiny island southeast of China in TSMC! The Taiwanese are on record to have wargamed a scenario that in case of a Chinese landing, they will destroy the facilities rather than allow it to be captured!

All this doomsday predictions have been going around for a long time and have mostly proven nothing more than a pastimes of retired generals and spies. So why am I paying so much attention to it today?

This will take us back to Vikram Sood where he explains that the US today is a power in decline and not the hegemon it was say 30 years back. It is only when you aren’t strong, you begin to haggle with your friends- read Canada, NATO, France etc. The world as we see today was designed by the US in 1945 and is being unraveled by Trump eighty years later. If there is any parallel to this situation, there is nothing even close other than the late 1930s just before the second world war! 

By this time, you would have certainly told yourself that I have gone nuts and nothing like this ever happens. Well, not until the day Russian tanks rolled out across Ukrainian borders in 2022 that we knew that there was a war in mainland Europe since 1945! Hand on heart and I would like to challenge anyone who did believe that Russia will actually invade- not even Biden believed so. If you go back in history, we always underestimate the chances of extreme events till the point they happen- how many of you believed that India will go in a complete lockdown beginning March 24, 2020 even when we were banging thali on March 22? 

2.    Market Cycles-

This bull run began in the Covid lows of 2020 and will complete six years in three months from now. From then, even with intervening falls, stock market has produced excellent returns for the ones who believed and bet big on India. Sectors like Power, metals, EMS, Capital market and railway-defense have seen multifold returns to name a few. The entire bull run in India hinges on the newfound powerhouse- retail buying through SIPs and Mutual Funds. 

It has led to a scenario where every big guy- Private Equity, promoter, FII and now even the government is selling whatever it can and that too at absurd valuations. This feels a lot like the late 1990s in the US when garbage like pets.com, etc went on to list at lofty valuations before dropping to zero a few years later. It is absurd to see Swiggy fall 50% from top at still at 1 lakh crore market cap. The garbage being sold in the name of new-age stocks is all going to hurt a lot of converts and new believers when the tide goes down. 

We know all this already so what’s my point? The point is valuation. I ran a basic screener to see how many companies in India have a dividend yield of more than 4% and there were very few while there would be hardly any paying more than 6%- the FD rate. Also, if you run a screener of the fancy sectors- you will see the winners of this bull market down 30-50% in multiple cases- Trent, Kaynes, Dixon, Entire Railway pack, Cochin Shipyard, IREDA, Avenue Supermart, Kalyan and so on and so forth.

So now isn’t my point invalidated? The market is off its highs and thus, is a good sign of a healthy market rather than a bubble, isn’t it? The problem my friends is- Valuation. All the stocks which are significantly down from their highs are still trading at 50-60-100 PE and in cases of garbage like Zomato-Swiggy-Nykaa, they are yet to meaningfully record any profits aside from accounting shenanigans regarding ESOPs and tax refunds. 

The poor retailer is hurting. He was sold this dream of 12-15% CAGR for the rest of his life turning his 2000Rs SIP into multiple of crores to fund his retirement, house and what not. He was told to buy dips when FII sold and he did. He is still buying when the promoter is selling but the returns are fast vanishing.  An average portfolio is in red and he is struggling to find his advisor who sold him the latest Defense Fund at the absolute top. 

Moreover, the mutual funds are now beginning to act crazy. In order to capture some portion of listing gains, they are diverting a large chunk of their inflows to stupid IPOs which eventually mean the retailer is giving a thank-you note to the fleeing PE guys. 

And look what our famous investors are doing- Ramdeo Agarwal is asking for some king of ban on IPOs to sustain the markets while the legendary Saurabh Mukherjee is selling us his latest Global Fund asking us to now invest in the US markets. I can’t but share this story- If you go to his PMS website, all of his funds have underperformed their chosen benchmark across all time durations ranging from 1month to since inception. And this is his own data! When this guy sells something, you know that the top is near. His dreamy stories about Asian paints has returned ZERO over the past 5 years, so have HUL, Berger and many more from his coffee can. Thus, I have a very bad feeling for the poor US market!

There is also a rumor about Indian government giving some sort of taxation relief to some FII on LTCG front which to my mind is absolute nonsense. This is a government focused to raise funds from wherever possible especially with mega cuts on Income Tax and GST front. Further, it is a no brainer that the defense budget has to go up. It is not for public health that the government threw ITC and Godfrey Phillips under the bus all for 13000 crore, less than a tenth of the monthly GST collections! Also, any relief in LTCG will only accentuate our bearish mood as that will lead to a true bubble scenario where there will possibly be a 10x jump in IPO activity. This is one reason why I never believed that the government will ban the weekly expiries because the capital market is the only revenue generator left! 

 

II.            So what do we do now?

We happily subscribe to Buffett’s philosophy that we don’t worry about macros but look to buy great businesses at good valuations and hold them for dear life but we also believe in what he practiced- holding cash when opportunities dwindle. Very few people know that he dissolved his Buffett Partnerships in the late 1960s when the US market went gung-ho on the then Nifty 50 stocks and then went all in buying in the carnage of a bear market in the 1972-73 which made him what he eventually became. Also, he held humongous amounts of cash beginning the mid 2010s and was happy to put part of it during covid crash and as on date, the pile is well over $300 Billion when he hung his boots on December 31, 2025.

The recent muted reaction to AMC stocks in face of bumper numbers signify that the market is sensing a near time top in the markets which may be marked by lower levels, reduced retail buying or a combination thereof. Otherwise with that number, HDFC AMC would have gone up 10% yesterday. Ask yourself why the HAL and the likes didn’t hit fresh highs on additional Rafales being bought!

 

We are extremely bearish as stated and are happy to raise cash, wherever possible. We see no point buying something today when the same thing can be bought 40-50% down 12-28 months from now. The main point is to sit out for that long and not just regret but look absolute foolish but we don’t want to be the last one dancing when the music runs out. We will turn bullish when there is a big splash- some fancy IPO going underwater- who knows its Jio or NSE which will jolt the retailer from his enchanted state of buying through SIP and even a 10% drop in inflows will lead to a total collapse in the face of massive supply. We foresee two scenarios here:

A.    Our base case is that this is some sort of 2018-19 phase when the market gets extremely narrow with managed index levels with brutal cuts in the small-midcap names. That time it was the quality stocks which benefitted the most and this time it could be metals, gold-silver, some PSU and capital markets especially if there is a relief on cash STT front. In this scenario, the capital most likely will shift in these names in a heightened geopolitical activity and index remains managed to a 24-26K level. It may even keep hitting fresh highs to fool the retailer to keep buying. We don’t see this play out longer than 12 months thanks to Trump’s compulsion to do whatever he can before the US mid term elections towards the end of this year.

B.    Our worst case is that Trump does take out Greenland in some form and China hardens its postures on Taiwan leading to unwinding of the AI bull run. In that case, it will be the greatest buying opportunity of our lives only if we are sane enough to have cash in hand. Who knows what else can happen in the meantime- the world is sitting atop barrels of kerosene waiting for a spark to blow everything up. Keep in mind that Op Sindoor is still ongoing! In this scenario, there will be no bottom to hold and the headline indices can easily go down 30-50%, just like 2008 or 2020. There is one important lesson I learnt from my reading of the 1929 crash- the first massive dip is always bought because people like us holding cash suddenly look super-smart and rush to buy bargains. It’s the next crash which takes everything down. In 1929, on the infamous black Monday, even Rockfeller bought. 4 years later, Dow had tumbled 80%!

III.          To conclude- No analysis in the stock market is perfect nor can it unfold in toto as predicted and we are fully conscious of the fact that our entire analysis can turn out to be absolute gibberish in the face of a strong recovery in Indian markets- who knows the government does remove LTCG in this budget! The only truth in the stock markets is that anything can happen- bubbles can last longer than anyone can imagine and a world war can start in a day. There is also a possibility that Trump suddenly dials down the rhetoric and the geopolitical tension dies down and the entire market rejoices. Who knows! 

What we are signaling here is based on our reading of the situation and we alone will suffer the consequences as we neither advise anyone nor want anyone to follow what we do. This is our way of telling ourselves how we see the things and if our analysis turns out to be true, we just want to stay sane enough to have cash on the day market collapse! We are here taking cue from Bill Ackman and his thesis – panic early, panic big. He panicked very early during the covid crash that not only he sold ahead of everyone else but also panicked big to buy long puts on his way down while famously buying the absolute dip in middle of March 2020. No doubt he made a few Billion Dollars! 

Here is a list of books I would recommend in the end :

1.     Great Power Games- Vikram Sood

2.    1929: inside the greatest crash in history- Andrew Ross Sorkin

3.    Berkshire Hathaway Letters to Shareholders 1965-2014

4.    How to Listen when Markets Speak- Lawrence Mcdonald

5.    Safe haven- Mark Spitznagel