I was sort of living in my own well, till about October 2014, sanguine that Markets follow their inevitable cycles. And if there was big crash in 1984, 1992, 2000, 2008 then somewhere around 2016 we should see a big crash as well.
I could see froth building up slowly everywhere, with any and every stock doubling or tripling from Jan 2014 levels, and the like. I was already preparing my absolute 10 BUY-LIST in preparation for the big crash in 2 years!
Till a casual conversation with a Fund Manager friend of mine shook me out of my well. The friend had spent an entire day sitting beside Ramdeo Agarwal at Birkshire Hathway AGM. Ramdeoji - was asking to suspend our valuation judgements if present in quality growth stocks and just STAY PUT…this is a Multi-Year Bull Run…unlike other times.
I immediately questioned this self-serving “This time it is different” line :-), but resolved to go and personally interview some of these Investing Legends, as possible. To see and examine for myself - where I stand - after I have collated enough new data points/differing views about the state of our markets - could I be better prepared, more risk-mitigated - no matter what the eventuality 
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Views from assorted Market Gurus - I had the good fortune to meet up early December, 2014
1). India is in a sweet spot
)- Oil Price is likely to stay low - Shale Gas vs OPEC fight
)- Commodities likely to remain soft
)- China is slowing down
)- Even if US Economy improving, UK, Japan, Europe have no option but to maintain near-zero interest rates & print money. Even China
)- All that money has few options - Can’t go to Russia or Brazil which are Commodity economies - some of it has to come to India
)- With the change in “Jockey” in India, International (and National) Confidence is Back
)- Interest rate cuts are near the corner, RBI has already indicated early 2015 time-frames)
)- If you are in Quality businesses, don’t try to use your head too much, India is in for a Multi-Year Bull Run
This is from the camp of Ramdeo Agarwal, Ramesh Damani, Rakesh Jhunjhunwaala (as can also be ciphered from their numerous media appearences/also available on YouTube)
2). Anup Bhaskar - perhaps the most contrarian of all Fund Managers today - punctures this somewhat
“I’m not saying I am bearish. India is perhaps on a strong wicket for next 2-3 years. But to extend this theory of India being in a sweet spot to 5 years or 10 years - there’s a fallacy there - You are expecting the global macros to remain unchanged for 5 to 10 years :). What if China suddenly decided to devalue its currency, e.g.” (again public pronouncements, available on YouTube videos)
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Some views from couple of market veterans I respect - those who look at long term cycles )- and have loads and loads of hard-hitting convincing data to throw at you, to convert even a skeptic like me - in my bid to understand how markets behave!!
[This is just another view. We DO NOT have to agree or disagree with these. Don’t have to jump and decry - so, you want to time the markets. But perhaps we can ponder; perhaps we can start observing, perhaps no one will fault us for trying to make some sense of what happens in Markets, and how and why?
Markets will see corrections - big corrections too. **But that correction/crash DOES NOT necessarily indicate the start of a BEAR MARKET **(say from somewhere in 2016).
Markets will probably play out smaller cycles. The current mania with Consumer Discretionery like Page, Symphony, Cera is unlikely to last. Earnings will not be able to keep up as they are already priced out 2-3 years ahead. These will lose steam and maybe time correct. Meanwhile Manufactured Exports cycle will continue to play out as the Rupee-Dollar equation is unlikely to change in next 2-3 years, and may weaken. Indication of rate-cuts early next year have been given by RBI Governor, so industrial/capex-led cycle is likely to pick up by 2 years. If the Modi Government continues to perform - and even deliver 50% of what he is promising - the economy will keep improving. Corporate Earnings will start catching up. Valuations may not remain extra-stretched. Probability of a multi-year bull run is pretty strong.
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As is my wont, I threw the above viewpoints - at every senior investor I know, in my bid to construct an appropriate response from my side. Let’s assume this bull market is not ending in 2 years by 2016; let’s assume it can well run for next 5 years; let’s also assume it can even run for next 10 years, with different sectors leading the charge at different stages.
Is it foolhardy to attempt a Market-agnostic portfolio for next 2-5 years? Something that can continue to remain high-performance for most parts, and risk-mitigated?
If I could re-construct my Portfolio in say 3 parts, what would we need to do today, to at least have 2 parts functioning well at any stage (one part remains dormant/under-performing say) of the market??
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Comments from some Senior Investors I have come to respect
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If you were to ask me today,
)- Are we in a sweet spot? - Yes
)- Are our financial systems relatively insulated from the mess outside (we have no derivatives mess)? - Yes
)- Do we have the demographic dividend? - Yes
)- Are we probably in a multi-year bull run? - Yes
)- Markets overall not over-valued? - Yes
)- Are there pockets of exuberance? - Yes
)- Will it need lot of time for India to get out of the mess it is in? - Yes
)- Can you find anything really cheap? - Difficult
)- Can you get quality businesses at full-to-fair price? - Yes
What you buy and what price you buy - is more important than when you buy - timing
We are happy to buy PSUs - because we see tremendous value in some of the efficient producers like SAIL, BHEL. May have to wait 2 years for cycle to turn but that’s okay. Some are sitting on tons of CASH, have irreplaceable Assets. No major investments happened in last 5-10 years. Coal India something has to happen. NMDC, MOIL. There is that risk that all capital allocation decisions taken may not be in the interests of shareholders, which is often the case. Therefore, cash is only a buffer and one should discount it by 50-75% when one does one’s valuation.
Also we can find cheap businesses, but just not as much as before and a lot of quality names are now fully to fairly priced. That being said one needs to change one’s approach and pay up for quality businesses in such a market. How much of course is the million dollar question.
Key is to be flexible - Where do I see “Value”.
Value is not cheap 6x Earnings or 0.5x BV. If Shilpa Medicare is going to double its earnings in next 3 years at 20x, there IS value in Shilpa!!
Portfolio Mix for next 2-3 years
)- I wouldn’t like to be in the 60-70x earnings businesses
)- if you can find Quality businesses @20x - better to buy them
)- Buy some Contrarian - Less than BV, <10x earnings
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