Archive for January, 2018

Long time, no see!

It’s been a long time, close to 2.5 years since a post was written on this blog. Anyhoo.

Nobody has a doubt these days that it’s a bull market. Whether it’s in the mature bull market stage or the euphoric bull market stage, only time will tell (my personal opinion being, still in mature bull market stage). On the investing scale of Novice to Professional, am still on the Novice stage, so pardon my conclusions/prognosis in my first extended bull market:

a) Re-rating mania: Lesser and lesser percentage of folks want to talk about business economics and earnings. More and more of them want to bet on re-rating – ‘arey boss, sabko pata hai re-ratings se hi paisa jaldi banta hai’. Letting the tape decide (as re-rating is entirely that) your investing actions is a bit fraught with danger (unless of course you are a trader – of whom I have many good friends – and their risk management, trade management is top notch). But hey, all of us have made good money in the past few years only on re-rating, very few on real earnings growth – so yeah – don’t complain.

b) Books: I have read some stellar books in the past few years – and in no particular order – ‘Markets don’t forget, people do’, ‘The Bull’, ‘Lessons from History’, ‘Sapiens’, ‘Short history of financial euphoria’ etc. and it’s been enlightening to say the least. What I am surprised by, is this access to information is so easy these days. If I can take you back to 1990s, I could not get a Tinkle easily and today, we get the best of the books with a single click. What this does to investors/traders knowledge and psychology today in a market is beyond comprehension – given that this investing/trading in India (and mostly abroad) – was a closed circle phenomenon. I am not talking of the incessant ‘guile of insights’ that float around in various Whatsapp groups where you can’t remember what someone posted 1 day ago, much less a month ago. This knowledge of these books – distilled wisdom really – has had a profound impact on my thinking, and hopefully many other thousands of investors who have entered the bull market in the last few years. Greed and fear will continue – as it has for thousands of years – but I am kind of expecting that the % of people (as a total of investing population) who will get hammered will be much reduced. Learnings will be faster. Whipsaws will be faster. Opportunities will be lesser.

c) 3 pillars: If you believe that 3 pillars will continue to stay – capitalism, entrepreneurship and democracy – for any country/industry, I believe that one can make money in the long term. Entry price is definitely a determinant of stellar returns, but these 3 pillars are more important to make steady returns over the long term (better than fixed deposit, that is).

d) SIP mania: The whole mania around SIPs will continue for much longer than people think. We many move across sectors, small/mid to large caps etc., but TINA or no TINA, these SIPs will continue (the avg. or the median SIP amount has not changed by much in the last decade – but incomes have gone up – and therefore the % SIP amount does not pinch anymore for other discretionary or big budget items). I think it will take a massive crash, and not a demonetization or a 2011 crash to take these people out of the market.

e) On the investing front, I only bought a couple of stocks in the last year as I couldn’t find much else/could not understand some sectors. I don’t believe markets are crazily valued in some sectors at this stage. As I said earlier, I don’t believe we are in the euphoric stage yet.

And, in conclusion, I believe what I wrote in Sep 2014 (This time it’s different) still holds true, especially this part –

The fallacy of selling 20% below the top: Which brings me to my next and favorite topic. Nobody wants to leave the party that is going on. Value investors are very famous and take great pride in laughing at the stupid statement of former executive of Citibank saying “”As long as the music is playing, you’ve got to get up and dance.” We laugh and laugh at that stupidity. We quote Buffett. We quote Munger. Why, these days, we have become more exotic and even quote Daniel Kahneman and his super book ‘Thinking, Fast and Slow’. But almost no-one wants to exit the party. These days, the hypothesis is even better. These days, investors say that ‘let the market reach the top and then correct…we’ll all get out 15%-20% from the top’. Let me explain this fallacy through a famous picture:


That’s the chart of the IT bubble – starting from 1996, all the way till 2001. All those investors who say ‘let the market reach the top and then correct……’, would they get out at all the points marked ‘Red’ in color – then they would have missed all the returns. ALl of the them plan to get out at the ‘Orange’ market – how would they know in advance? Conversely, in reality, wouldn’t most investors get out at all the points marked ‘Green’ in color – throwing in the towel? Every investor worth his salt wants to get out at the point marked in ‘Orange’. How many can do it? I seriously doubt if it would be in high single digits.

Then again, the lure and the logic is too irresistible. Combine that fallacious logic of immediately getting out at the right moment with your neighbor (rather, twitter/whatsapp friends) making more money than you everyday – and you have got a dynamite waiting to blow up. We all want to dance till the last minute, irrespective of how many times we read Buffett pleading ‘the clock has no hands’.

Let’s enjoy the bull market till it lasts. I am still cautiously optimistically bullish – or whatever hell that means.


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