Hi ,
Where can I download the leverage report on regular basis and how do you say it’s at an ATH (any chart we could refer to find it ?)
Thanks
Bull market, and not a Bubble acc. to them
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The argument that we are not in a bubble in the above video of TV experts is the following two comparisons
Midcaps
Smallcaps
We are substantially lower than Oct '21 (roughly 30% lower), so we are not in bubble, goes the argument (We are merely in euphoria it seems). Lets go back to Oct '21 - back then RBI repo rate was 4% and US 10Y was at 1.5%. I think we can all agree that risk-free rate affects P/E multiple a LOT, especially when it’s closer to 0. We had 8 RBI meets without a cut to the Oc '21 meet (yes, “cut”. We were expecting a “cut”). Inflation hadn’t yet reared its ugly head. Fed was caught napping saying inflation is “transitory”. That’s Oct '21 period in a gist.
Are we going to get to that P/E now when RBI repo rate is 6.5% (fed funds rate now at 5.5%) and there is no sign of a rate cut at least until March '24 and worse still, we may have to tighten rates in a surprise move if crude goes above $100. Sometimes risk can be very visible, but we can still be blind to it because it suits us. Instead of looking at these “avg” numbers, ask yourself what % of stocks you have looked at of-late are trading under 10-year median P/E (for me its probably 1 in 10 at most, or 10%)
Crude has broken out and is at Nov '22 levels. We have had a very benign period in the last 9 months, with Russian oil powering our growth (acquired at a significant discount which kept narrowing until it vanished recently) - this kept our deficit low, currency stable, reserves intact and also we played energy arbitrage really well as lot of European manufacturing moved here - European growth as well depends on crude being low, since they are net importer and discretionary income there can come down dramatically with crude above $100 - so what we can potentially have is a lollapalooza, a vicious cycle of global demand compression - which is not priced in.
Also, my previous post is not a prediction (I am not in the news dispensing business). As a practitioner, we have to stay on top of potential outcomes and their probabilities. I feel
- There is a 25% chance of another 10-30% rally in small caps
- 75% chance of us being close to the top, with maybe another 5-10% to go at most - A top which can be a short/medium term top, depending on how worse macro gets. If crude goes above $100, we can be nearly certain we have made a top.
The reason I think that is purely macro driven
US has not had inflation at these levels for over 40 years
The US 10Y hasnt been at this level in 15 years
These two are known things and market has pretty much forgotten these since these are worries of '22 (right?). It has gone to the back of our minds mainly because US managed the crude situation last year using its SPR (Special Petroleum Reserves) which it built in the '80s because the OPEC spooked the West causing the inflation in the '70s by cartelising Oil.
The SPR was built specifically for this purpose to counter financial terrorism (through oil). It has helped see through a year or more but now the SPR levels are at levels last seen in '82 (US sold bulk of it to bring down oil from 120+ to 70+ levels)
There isn’t much the West/US can do to defend crude here on (unless it works out some peace negotiation or lifts sanction on Iran or something completely left field - or of course, raise rates further). For an oil importing country like ours, this can be collateral damage.
I am not totally bearish but I think lot of concerning things are happening. The “euphoria” in small/micro/sme is real. In '18, there was neat switch from Micro/small to largecaps. So I am not at all bearish on the Nifty which I think is still only slightly expensive. There’s a good possibility of similar thing happening again but the market participant composition has changed substantially since '18 - so am not sure how well this might work (There was significant herding into HDFC, Asian Paints, Pidilite, DMart etc., the so called quality stocks at 100 P/E)
Extreme caution is warranted in SME space and microcaps - these can turn completely illiquid overnight when tide turns and notional gains can evaporate. Also be wary of all the storification. I haven’t stayed abreast of all the demergers, promoter stake sales, cooked up numbers etc. - but these were very common in several names - if you haven’t yet, do temper your optimism by going through the carnage thread. There’s no need to see through the end of the party when all the single malt is gone and only arrack is left
Disc: Been fully invested since July '22 and it has been a great run. Started reducing exposure to market this week by scaling down NBFCs. I am still ~85% invested and will progressively scale down as performance weakens
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One can always find ample data to support any bullish or bearish view. But macros are not in our control and pondering over them will do us no good. In stead, here are couple of things I try to manage risk in my portfolio.
1. Never track macro : Almost always, the market is the leading indicator of macro, not the trailing indicator. When the markets rise or fall, the real underlying cause is visible only after couple of quarters when it’s already too late.
2. Be prepared to take losses : Taking losses or submitting paper gains is just a part of operating in the market. Being prepared for it beforehand saves us from the emotion turmoil that follows. In this context, it is important to know the difference between odd and edge. We may have edge even when odds are not in our favor. For example, if I have a hit rate of only 33% but my winners make 50k on average and the losers lose 10k on average, then net net, it is a winning system.
3. Never fall in love with your stocks : It is important to avoid developing affinity or hatred for any stock. It is important to do so the make the mind bias free. It’s not our job to defend or cheer lead any company. A shareholder is different from the management. In fact, it’s the very reason that prevents me from participating in discussions around the stock.
4. Position sizing and risk management : This is more important than finding gems at throwaway price : At times, we all lay our hand on gems and at times, we all burn our hands in some stock or other. Initial entry point is not a significant reason for the profit or loss we make. For this, I use a trailing stop loss, not all at once, but sell a chunk everytime a support is broken. Selling at loss, is one of the most difficult things to do because it not only make our paper loss real but it also subconsciously enforce the idea in our mind that our initial hypothesis of investing that particular stock is wrong. One real life saver in this case is that almost every broker in India now permits to place good till cancelled stop loss order. Personally, I put a stop loss the same evening I buy something. Stop losses are permitted to be revised upward but not permitted to revised downward.
Another important concept here is position sizing. Even when we find the best opportunity to invest, always think in terms what is the maximum we can lose and size our position accordingly. It is always better to be alive for another day to fight back after the carnage.
5. Markets are supreme : Markets are always supreme. It will not rise just because I think they are undervalued. Similarly, it will not fall just because my personal opinion is that I find it overvalued. I need to adjust my mindset and expectation according to the market, not vice versa.
Feedbacks welcome.
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Very useful information. I would like to know how you decide to sell a position? Please give your feedback on the same.
Thank you
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I would give my idea of selling a position, which according to me is based on the timeframe for the investment.
- Long term Investment(More than 3 yrs): Only when you need the money- This is the investment type that is to bought and kept for as long as possible, only liquidating it when in dire need of money. By keeping your portfolio intact, you are increasing the possibility of having one stock that gives you 30% CAGR for 20 years period.
- Medium term investment (0-3 yrs): Profit booking on reaching a set target or tax loss harvesting- For medium term the approach should to have some set targets (e.g. 3x times change in index during the same period) to initiate the profit booking. If using index returns to set the profit targets, use appropriate sectoral indices or indices based on market cap of the share.
- Intraday trading: Maximise the hold time- Initiate the trade as soon as possible and square off as late as possible.
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@devaki.tripathy Thanks for sharing your “five mantras” for investment in the stock market. These should be the touchstone used before making any investment decision. While four or your five tenets are agreeable with my style of investing, I have my reservations with the first statement of “Never track macro”. I have experienced that inclusion of macro parameters along with their forecasts makes the system more robust. The crux is to get the macro forecast more accurate than what the market is predicting.
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I generally try to buy and sell in 3 tranches. After buying the first tranche, if the stock moves in expected direction, I add two more times after around 10% rise each. If the movement is not as per expectation, stop loss gets triggered. After the acquisition, I always try to place a trailing stop loss which is revised upwards in every 1-2 weeks or stay the same as per the stock’s movement. After the previous support is breached, first stop loss gets triggered and after each 5% fall, SL2 and SL3 gets triggered. After buying a stock, we generally develop an affinity towards the stock and selling it after surrendering paper gains is really difficult. So I try to make the process as automated as possible. The process is not perfect and will never be. We all need to learn and implement continuously.
It is quite helpful for someone if he/she has an alternate profession and don’t need to depend on the markets for daily expenses. Let the market decide when it wants to throw us out.
@Nickp
Some people are really objective towards evolving macro and change decisions accordingly. For the rest of us, macro makes our views biased and create a self reinforcing negative feedback loop.
Moreover, macro is subjective and can’t be quantified. Two months ago, we all were impressed by the power of LLMs and the kind of productivity gain it would bring in the white collar professions. AI was expected to lead us to the next information age. Right now, we all are worried about an impending crash in China because of the signs like housing bubble, population decline, high youth unemployment etc. If China really performs bad, it would send shockwaves across the globe. Whether one is a pessimist or an optimist, one can always find data to support and reinforce that particular view point.
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Crude might top out by end of September
Have you made any analysis between crude and nifty?
Is there any correlation even if you offset rise or fall or crude by 1 month, 2 months
I don’t see any correlation
Markets are correlated to liquidity at global level so you see all risk assets rising and falling at almost the same time
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