Confusion. And then Chaos.

I admit. This is my first bull market with a substantial percentage of networth in equities. Maybe that’s why there is a lot of confusion in this chaos.

a) Prices are going up faster than you can say ‘What’s the EPS’? (Cashflow is, let’s just say, not on anybody’s mind right now). Folks are bidding up known stories, and more so the unknown. The more unknown, the better. The more known, the worse. Everybody is out there to unearth hidden diamonds, even from stones who haven’t reported profits in years. There is always an angle in the bull market.

b) Markets always rhyme, never repeat. We all ‘know’ how this will end. What we don’t know is when it will end. As they say, being too early is as good as being wrong. So, of course, we can quote Buffett for every single investing phenomenon and bring up Munger for every bit of behavioral science. We are too knowledge-able these days. Adding to the confusion. Now, there are always two angles to the story. And then there is quality. ‘Margin of Safety’, you say. Can you just hold this glass of water for me, while I laugh the shit out of you?

c) The advent of instant message technology (read: whatsapp) along with its widespread usage has obviously made this bull market different from the others. There is nothing that you write anywhere – and I mean, anywhere – that will not go viral. You actually have to expect that it will go viral. Even if it’s your colleague who has worked on common investing stories. Tremendous social proof at play. You send one message. I will send it to someone else to verify if what you said was true. And then it goes on and on, till you get back the message yourself. Not far from reality. Couple of weeks back, someone forwarded me a set of insights/questions that were supposed to be secretive (with an added masala of ‘bilkul kisi ko mat bol’). In about 4 hours, I got that message from 4 other folks and lo and behold, it was also on a forum. Social proof out of the window. This is social incest.

d) And obviously, because of all the above, the resultant price moves in stories are also very swift (upwards/downwards). But hey, you keep saying “volatility is your friend”. LOL. I meant that only if I had cash to invest. Not when I am fully invested like now.

e) A special phenomenon of this bull market, along with instant messages/whatsapp, is scuttlebutt. Fisher, who propagated scuttlebutt would probably be very happy (or be turning in his grave) because of the number of people who do scuttlebutt these days. And the kind of scuttlebutt. And the type of scuttlebutt. And how they tie in one shop/one retailer/one distributor’s conclusion to the entire story and weave a fantastic hypothesis which cannot be refuted. The butt has been scuttled in so much variety over the past 2-3 years, that it would put Arvind Kejriwal’s political gimmicks to shame.

f) These days, any and every story should atleast be 20 P/E. If it is not, it is seemingly undervalued. And best of all, this P/E thinking kicks in even more because earnings are increasing almost across the board. But you say – hey, global economy has slowed down, domestic economy hasn’t picked up – so why are the earnings increasing?. But, my question to you is, who the hell cares about sales growth anymore? It doesn’t matter if the growth in EPS has come through lower raw material costs (commodity prices at lows), or lower fuel costs (did you see the fuel expenses in P&L statements these days – thanks Piyush Goyal) or slightly better operating leverage? Who cares if it is sustainable or not? Why don’t I care about sustainability?

g) Hey boss, by now, you would have got the drift. I am not in the business of long term investing. I am in the business of giving gyaan on long term investing but actually invest based on triggers/news flow/get into the next best story and flip it in a quarter, maybe a year (if I am really in the mood). I don’t have time for any stocks who don’t perform magnificently quarter on quarter. Flip. Flip. And f’in Flip. There are charts and there are tools and there is momentum and then there are earnings. We are in the business, eventually, of finding the greater fool.

But all this sounds as if I am doing all the right things and not fall prey to all these above flaws? Of course I am.

Do I always invest in quality? Check. Do I always invest in stories with large potential and great management integrity? Check. Do I always do scuttlebutt and speak to the right guys in the business? Check. Am I not affected by P/Es and triggers and whatsapp messages? Check.

I am not confused. This is not madness in markets (neither is it Sparta). Of course this isn’t Chaos. I know everything. How, you ask?

Because, I am just as confident as a f’in fresh MBA grad who can spout relentless ‘good’ advice with all the enthusiasm and language. And all you underlings – I mean, all other investors – listen to what I say. You will be wiser for it.

QED.

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  1. #1 by Aravind on August 9, 2015 - 5:21 PM

    Cant agree more sir. Its like meet the target no matter what the funda say, sell, if you dont next week you’ll cry. Ex: In public domain we have a lot of static and actively managed funds, if you see Canara Robeco Emerging Equities portfolio it has been changing every month and thats delivering good results, where as IDFC Sterling Fund which has a more or less same stock holdings from 2014 is doing badly over many time durations, thats because of lack of momentum as you correctly said, best Ex. no one is talking of Hawkins and TTK Prestige which were the talking points before, none is cared abt. Symphony, Sterlite Tech, Gati, TV Today, Pix Transmission, etc……long list that were fav.’s of yesteryears…… Its a buy and sell on tgt kinda positional market.

    The music is going to stop somewhere, the key has become quite easy now, so I guess it wont be long when all the money people thing they are making is going to be gobbled by the bears. Overconfidence bias seems to have set in already.

  2. #2 by Sudipta Banerjee on August 9, 2015 - 5:38 PM

    Why so angry ? 😛 I often tell myself the rally is all Maaya 😀 But still we have to buy right and sit tight….

  3. #3 by Saurabh Kurichh on August 11, 2015 - 5:19 PM

    Nice writeup. I landed up on ur site out of nowhere . But i am glad that i did. As it is said that a person is known by his actions, i feel a lot can be said abt a blog from the blogroll that it has, You surely have a great collection.
    The writer of this article surely has a funny bone in his body
    …… Everybody is out there to unearth hidden diamonds, even from stones who haven’t reported profits in years. ……

    … Can you just hold this glass of water for me, while I laugh the shit out of you?…..

    …. This is social incest…… cud not stop smiling. but that was not the reason that i was suposed to read this article.

    I have a small nagging doubt in my mind. investment parameters
    1. Quality
    2. large addressable market
    3. management integrity
    Lets take an example of Hospitals , large addressable market = yes , but can you determine quailty and management integrity, could you please clarify that doubt .

    more later

  4. #4 by Santa Claus on August 13, 2015 - 5:28 AM

    Dude

    Stop spoiling it for everybody

    Sheesh

  5. #5 by kdaaku on August 15, 2015 - 5:06 AM

    @Aravind – Music will stop of course. That’s the nature of markets. But what are we doing behaviorally is the question. Are we, say in 20% cash to be ready for the music to stop? Are we comparing notes on whatsapp everyday? No easy answers. We think we may have the answer, but we definitely know we don’t have the answer 🙂

    @Sudipta – Buy right and sit tight. Yes, right. As I said, even stones being bought are being called ‘buy right’. Maybe what I bought are, in reality, stones. But I think (or thought) I bought right. You know what I mean? 🙂 You would only know if you bought right after the flood has subsided.

    @Saurabh – Thanks. Management integrity can be determined quantitatively and qualitatively. Quantitatively, you can look at the history (say, 5-10 years if you can) to check if they have disclosed all relevant aspects in their annual reports and quarterly reports. Qualitatively, you need to do some scuttlebutt on the management by talking to Doctors. Most doctors are highly networked due to the nature of their business/service.

    @SantaClaus – Enjoy the party man! What can I say.

  6. #6 by brownderrick807 on September 29, 2015 - 11:32 PM

    Great Read..

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