BULL in BEAR Market

(suranjit sarkar) #41

I think at CMP most of the negatives are priced in. Moreover oil tax is the cash cow for government, its going to support India’s growth story and for time horizon of 5-8 yrs from current levels it could create huge wealth.

With very conservative estimates, If I look at BPCL on consolidated level,

  1. It has cash and investment worth 25k cr
  2. Net Fixed Assets of nearly 40k cr
  3. Annual cash flow of about 8k to 10k cr( lets assume it gets reduced to 5k cr due to re-regulation)
    so, in total it is worth 70k cr(25+40+5) without any growth and it is trading at 57k cr market cap.

(Shailesh) #42

Being bull in bear market has it’s own behavioural challenges . I too had few of them in 2008/09

1) Being Greedy on price :

I set buy price so conservative that the same is never reached . Second issue is the buy price is moving goal post . It keeps going down as market goes down … Again this often made me miss many a opportunities . This behaviour was prominent after being in bear market for atleast 6 months

2) Being Greedy on Volumes

Here I started making very high volume purchases during first phase of market fall leading to hitting position limits faster and not able to take advantage of future falls . This behaviour was prominent in first phase of bear market which had come after a long bull market . The desperation to buy was so much that I was ready to pay much higher price than warranted .

This can be only being reduced and not eliminated .

I found the best way to reduce the above behavioural bias was to set Buy and Sell price for stocks and volume you want own at start of year . - Keep 75% allocation of cash to be spent for these purchases

The rest 25% needs to spend when market are @ extreme - and you get opportunities in stocks which were not part of yearly plan or @ such a low price level that you feel allocation can be increased .

This worked for me in 2013 ( small & mid caps ) / 2016 ( for metals ) / 2017 ( IT & Pharma)

But the above strategy is still a big question in 2018 - Only in 2019 or 2020 I will be able to tell if it worked or not .

Till date assessment - first cut while the strategy seemed to have worked well in stocks which I had planned to buy and had price worked out @ start of the year … but on new stocks buys I got “greedy on volumes again” and bought them @ higher prices then I should have …

(Shailesh) #43

Macro Deep Dive :

Current BEAR market is attributed to rising US yields ( interest rate ) : Lets study past to understand
how Interest rate increases impacts economy and stock market

  1. 1950s : US interest rate from near zero went up post WW2 … This was golden period for both stock market and economy … Now why is it that … The central bankers in this period raised interest rate for normalisation and not to fight high inflation , so the increases were more gradual . This path enabled business make investments with more clarity and savers got REAL interest.

  2. 1970s : Sudden increases in Crude oil - led to high global inflation and central bankers had to hike interest rate in response to control Inflation … This was more drastic 21 times averaging 6.25% pa . that is what stalled the growth . High inflation meant most of early savers lost money on real basis and combo of high input cost and high interest rates meant business had trouble investing in viable business projects .

By end of 1980s US treasury bonds were paying 16% interest rates … Imagine then what interest rates would have been prevailing in India it went far higher than 20% and Rupee depreciated BIG time … Leading to crazy things like Emergency , Nationalisation etc …

A GOOD lesson was learned during 70s crisis - that rates should not increased at fast pace …

  1. In 1994 -1996 … On back of strong economic growth FED started increasing rates slowly … The impact was felt exactly 2.5 years ( from start of rate hike ) later in form of Asian crisis wherein most emerging markets went into recession . But tech boom erased the memory fast …

  2. From Mid 2004 -2006 : Again on back of good economic growth FED started hiking rates slowly - 2.5 years later market cracked and we had 2008 /2009 Great Recession . This lasted for just 1.5 years unlike 1970s which was a painful decade…

  3. In Dec 2015 Fed started hiking rate again slowly . and now after 2.5 years ie in Sept 2018 we know what is happening …
    Are there added risk like … INFLATION – > Fiscal easing through Massive Tax cuts + Trade Tariffs may increase cost of inputs and final goods … Will Fed take knee jerk reaction to inflation like in 70s . I am not sure … but it will be interesting to watch what happens in next few months

Interesting Reading :

  1. https://www.businessinsider.com/every-interest-rate-cycle-since-1970s-2015-12?IR=T#january-3-2001-to-june-29-2004-12