I liked the way you are thinking … but my experience in last 15 odd years in market indicates it is never the same …
Still we can think what can happen in 2019 …
US growth peaks on account of interest rate hikes
US Stock Market declines , but money can move into US fixed income esp if US treasury rate come closer to 3.5%/ 4% …
Dollars continue to be strong as imports decline on account of China tariffs … at least of a year .
China slows down on account of US tariff .
China tries to ease so Yaun depreciates more than rupee and other asian currencies
Chinese exports are more competitive
Chinese oil demand reduces leading to lower oil prices
India post election may have less than majority Govt
Fiscal loosening may happen … leading to inc in Fiscal defict & inflation & rate increases
Fixed income will become more attractive and people may shift money from equity to debt ??
In equity companies with large cash balances will earn higher other incomes and ones with debt will have servicing issues …
Rupee will be weak to dollar but may tag along other currencies
All the hypothesis stated by you may unfold. But the truth is market factors in all the negatives well in advance. Hence be nimble enough to get in before the tide turns to take full benefit. Staggered investment over the next few months or years is definitely a better idea. Because nobody knows the bottom and sentiments can take U-turn if FII selling subsides. A lot of domestic money is sitting on the sidelines to be deployed when the market turns. Leverage among the retail is low this time and more retail money is coming through SIP. With the large caps like Asian paints, Pidilite, D-mart etc which were defying correction having started to give in and the pace at which they are falling the bottom may be hit sooner than expected.
What beautiful posts! I too am just like you - a novice slightly more informed than an average retail investor. Since the last 2 years my thought process has developed just like yours - which is to recognize that. I have been telling several of my colleagues as well as friends since mid 2017/early 2018 that the time for novice investors like myself is over and if one is to make money over the long term from here it is the job of “professionals/excel gurus/DCF champions.” Only important thing is - “professionals” are looking to make 25% CAGR, ill be happy with 18% CAGR even if that means losing out on some opportunities.
The last stock I bought was in November 2016 right after demonitization. After that, until June 2018, I didnt buy a single stock. Every time “the market” and by corollary, my stocks went up, I sold a little bit more. I sold out of most of the crap in my portfolio but found it much more difficult to liquidate the HDFC Banks/P&G’s/JubilantFoods /Ajanta’s of my portfolio and was left hanging with them when the market crashed. Fortunately however, by June 18, as a result of more selling and no buying (and flow of salary income) I was sitting on 45-50% cash not because I attempted to “TIME” the market but simply because with my limited knowledge and limited time (I have a day job), I just couldnt get myself to hunt for the needle in the haystack - that 1 undervalued stock amongst hundreds which are “richly” priced.
To find undervalued stocks with this kind of “market” valuation (as peter lynch says - if 1 stock is expensive there is a good likelihood others are expensive too!) there were 2 ways you could do it:
Have some insight/foresight that others (including many of the highly informed) didnt have and realize that paying 80 times trailing earnings is actually cheap because this stock is priced to grow at 20% for the next 7-10 years but is more likely to grow at 25% instead - A WHOLE 5% MORE!
Have some amazing scuttlebutt skills/idea sourcing skills whereby you could see a turnaround just around the corner (something not even remotely reflected in the numbers yet) and thereby make gains from that
For everyone who couldnt do the above two (or some other genius way of finding undervalued stocks), it was better to not let the FOMO feelings take over. A lot of the stocks that I didnt buy after November 2016 are much more expensive today (in terms of absolute price) than they were then but most of them are cheaper or as cheap in terms of valuation metrics and I feel much more confident deploying capital today!
Going against the grain of lessons taught by “professionals” to other “professionals” I feel it is important to even start trimming even celebrated names like P&G when they reach 85 times earning with high single digit growth or low teen growth or Ajanta Pharma when they reach 40 times earning with headwinds on the foreground as opposed to riding the momentum hoping that they will only time correct and the fact that it is impossible to “time” individual stocks and the market.
No matter what kind of an expert you think you are, always remember that when ideas are scarce, it is time to excercise caution instead of finding the needle in the haystack even though you might have the actually have the ability to find it! Investing is as much about managing risk against reward as much as it is generating the incremental alpha year after year every year. I feel it is ok to under perform and take sub - optimal decisions sometimes with the view to keep risk in check.
Would be interesting to hear the views of @dineshssairam since he has been such a staunch opposer of this view!
downside may not be as much as some fear…fair value as per the trend line seems to be arnd 2200…(to an extent, it depends on how one draws the trend line )
edit: have drawn trend line on 100 yr log chart of dow jones index as well…fair value as per trendline there is also arnd 20 percent below CMP…
Thanks. This is useful.
One query - do you have anything similiar for India indices ? Also so you think there is good co-relation between US & Indian indices ?
Just want to understand if US market behaviour can be employed to predict Indian market. More like an early warning system
I think it might be a good idea and a prudent policy to keep arguments to civilised levels. Before rebutting someone with a torrent of answers and arguments think hard whether you are adding any value to other guys reading the discussions on the forum.
A lot was written about Warren Buffett’s intentions in closing down his funds in 1969. His utterances and writings can be interpreted and misinterpreted in multiple ways but it takes us nowhere and it wont add value in any form.
So lets keep up the level of the discussion on this forum and try to add value.
A few points which i feel would add quality with respect to this thread are
i)Discussions with data about past similar corrections and inferences from them to navigate the current correction
ii)State on the current correction and opinions moving forward
iii)Technical indications for gauging the direction of the market
"Why is a Guy with a system always welcome in as casino"?
This is an old Las Vegas saying that applies equally well to financial markets. Having a system gives people a sense of security - nothing can go wrong. Every time one walks into Mandlay bay or Bellagio in Vegas, he is reminded that all these fabulous structures were paid for by people who thought they could beat the blackjack tables. The owners of Luxor borrowed $550 M over 20 years to build their place, they were able to pay it off in less than three. Tell them at the front desk that you have a system, and you will most likely get a presidential suite and a private table.
Every trader has different dominant personality traits that he uses to absorb information and relate to the world around him.
From : Mastering the Trade by John F Carter.
For the sake of self pride or whatever, one can keep debating / arguing , but does it really helping anyone.
Many landmines will be discovered in the micro/small cap space once the tide of the bull market has turned. One such name appears to be Tiaan Ayurvedic and Herbs Ltd (though I am willing to be corrected). Key point to note is how the promoters have gradually sold out and reduced their shareholding to an abysmal 8.6%.
There will be many such cases worth discussing and lessons learnt for life (not that I invested in this).
TIAAN Ayurvedic and Herbs Ltd
Till 2016, a finance company. Name changed from Rachana Capital to Tiaan Ayurvedic & Herbs Ltd
Entered the Ayurvedic sector
Started trading with no manufacturing operations
FY2017 sales Rs 53 lakhs
FY2018 sales Rs 10 crore
Preferential allotment of shares at Rs 18.69/share (July 2018)
Stock price moves up from Rs 7.4 on April 3rd, 2018 to Rs 163.85 on October 24th, 2018 (YES, increase of 22 times in 6 ½ months)
Announcement of launch of Tiaan brand of ayurvedic products on October 22, 2018. Market Cap reaches Rs 84 crore.
Stock price turns south from October 24th.
Check the promoter holding; promoters continuously lowering their shareholding
Stupendous thought process by the Professor! Although the post isn’t strictly related to the Indian markets, the key takeaway for me was the way in which an investor should conduct himself during a market downturn.
I do what the Professor says, although not so precisely. Just like a change of scenery helps, a pause and a look from some distance helps assess the picture. Nice share, thank you Dinesh.
I have been watching this market and wondering at what stage of the correction we are presently. Though the mid caps had started melting down since Jan 18, the large caps went on for many months before hitting roadblock. Though the investors who invested prior to 2017 did make money, the market invariably did not have all the trappings of bull market frenzy even at end of 2017 which is normally followed by all and sundry getting lured into the market. Hiteshji did say in Jan 18 that distribution seems to be taking place in small and mid caps but almost all were of the opinion that the final melt down was at least many months away and hence did not book profit and saw their notional gains evaporating . In the same way, many are expecting this meltdown to get more ugly and display all the signs of erstwhile market meltdowns and then they can go and load up on their favorite blue chips at rock bottom prices. Looking at the way the meltdown caught even the marquee investors like Ashish Kacholia and others unawares (He bought Butterfly at 570 I think), I think we may have seen the lowest prices on many scrips already like PNB housing, Edelweiss, etc. Since I have yet to learn the nuances of TA, can someone throw light if my musings are/are not way of the mark. If not proper, the moderators may delete my post.
Each of the above themes result in winners and losers … For examples
Higher interest rates winners are companies with huge cash balances like ITC , HUL , Infosys etc … They earn huge other incomes whereas companies with high debt are losers as their interest cost goes up …
Similarly Inflation is great for companies with high pricing power esp Brands that buy commodities - Their nominal revenue growth will be higher + many of them are able to control RM prices on account of their bargaining power …
While inflation is bad is companies which buy brands and sell commodities … while RM prices will go up , they will not able pass it on to their consumers …
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