This Time It’s Different ?!

vikasbargale · January 19, 2024, 4:26am

Markets are hovering near an all-time high. So, is it time to be cautious? Or This Time, It’s different.

I came across this in the wrap newsletter by Tariq Hussain

Attaching the snapshot below.

So, have we peaked out? Or This Time It’s Different [TTID]

Well, why is it different this time?

Because India is in a secular growth phase, it has one of the highest GDP growth. There are various factors to consider. ( Attaching only a few links to avoid making a huge post)

Growing Indian Economy

India economic outlook, January 2024

India’s Growth to Remain Resilient Despite Global Challenges

Demographic Dividend

India@100: reaping the demographic dividend

India’s Demographic Dividend: The Key to Unlocking Its Global Ambitions.

Government’s Capital Expenditure

Expenditure of Government of India

Budget 2024: Infrastructure - Government likely to continue capex push

37.4% increase in capital expenditure to 10 lakh crore in be 2023-24

Private Capex

GDP numbers suggest private capex gaining steam, say experts, CFO News, ETCFO

Private sector will have equal or greater participation in overall capex - Market News | The Financial Express

Financialisation of Savings

The big shift in financialisation | CRISIL

The evolution of financial services and savings trends in India | Mint

China +1 Theme

India Better Positioned to Navigate Global Headwinds Than Other Major Emerging Economies: New World Bank Report

India Big Beneficiary As Companies Move Towards “China Plus One” Strategy

Should India be Your China Plus One? - India Briefing News

Renewable Energy & Green Hydrogen

India’s energy independence by 2047 a certainty!

Hydrogen Overview | Ministry of New and Renewable Energy | India.

India | Green Hydrogen Organisation

I can add a few more points to this list. But as of now, this much is fine.

So is it different this time?

Here is one of Benjamin Graham’s Quote

Along the same lines, while Indian stock markets have done very well over the years, Indian retail investors have not benefited as much.

While there are many reasons behind it, the difference primarily comes from investors trying to time the market. Buying when the market is at an all-time high and selling when it falls is the most significant factor affecting investor returns. The other apparent reason is that people don’t invest in mutual funds for LONG TERM. 1

Let’s summarise the biases that are at play right now.

Among the many, Recency Bias and Herd Mentality are the main biases. On top of that, Authority Bias is also at its peak. It’s time to control your Action Bias and FOMO, aka Fear Of Missing Out.

I am also as confused as others about - How to play in this kind of market.

What are the possible solutions to this dilemma?

Wait on the sidelines, and don’t put any fresh capital now.
Avoid social media noise and all the trending hot sector stocks.
Do profit booking in richly valued and borrowed conviction ideas. But keep holding your own conviction ideas ( or even add if you are comfortable with the valuations) which are in your Circle of Competence.
Go back and re-apply your checklist to all the current holdings. And prune the low-quality business that may have entered your portfolio ( due to the Euphoria of the Bull Market ).
Remember to maintain an investment diary where you can jot down your thoughts and ideas to gain clarity of mind. Writing down your thoughts can help you make better investment decisions.

But the simplest solution is - ‘ Just Keep SIPing…’. Just continue your SIPs for the long term.

dr.vikas

P.S. I just wanted to quickly mention that what I’m saying are my own personal views. And to be honest, I have no idea how the future is going to unfold.

1 - You may not be earning as much as your fund is | Value Research.

Ascendant · January 20, 2024, 3:30pm

Thanks for your take, I also have a few points which are mostly contra to provoke a discussion.

Why should one wait at the sidelines? One might need to rotate the PF into different sectors, or companies. Earnings season has started, how can this be the time to wait on sidelines, we need to go through results, management guidance and see how our conviction companies are doing wrt to the other companies in the sector. Having conviction is not enough, things can change within the company and the only thing constant is change.
Avoiding social media noise, and hot sector stocks can lead you to miss out on huge gains and only leave regret in the end. PSU Banks, Renewable energy, Capex companies have been hot for a long time. Each quarter a new sector becomes hot and need to be analyzed. For example, recently Realty and Tourism have become popular, before that Railways was popular (build up till G20)
How can I trust my conviction as a beginner-intermediate investor as compared to the borrowed conviction idea from a PMS, Mutual Fund, Brokerage, Ace investor etc etc. My conviction does not work unless big players like Institutes also have same conviction. People are stuck with HDFC Bank conviction since 2021.
Agreed, we need to keep doing this on a periodic basis.
Yes
Just keep SIPing: While this is a good strategy for a country in a position like India, it is not universal and has not done well in Japan, China etc.
Market returns will continue to depend on inflation, Bond market rates, and participation by others. If I keep SIPing, but SIP inflows reduce (cause other people stop), there is no support from DII and market will fall when profit booking is done. We have to watch others (through SIP inflows data) and take decisions accordingly. You could increase SIP amount in years like 2022, and lower it in 2024 if you feel market is richly overvalued. Many factors are there.

Your take on this?

vikasbargale · January 23, 2024, 2:04am

Sorry for the late reply. Was a bit busy.

1 - Yes. Sector rotation can give a better CAGR than simple long-term compounding with fewer transactions. But as I have said, THESE ARE MY PERSONAL OPINIONS. And I am ‘not that smart’ to analyse and know which sectors will turn around. And waiting on the sidelines means not investing any fresh capital. The study of businesses is a continuous ongoing process in the background. And conviction is not a BLIND one. Long-term doesn’t mean you don’t track the businesses. The days of buying it and forgetting it are gone. You need to analyse each and every one of your businesses quarterly.

2 - Nowadays, it’s very difficult to differentiate between noise and knowledge on SM. We don’t know other people’s incentives. Yes. I know with a few technical indicators like RSI, etc., we can determine which sectors are trending. But again, you have to be on your toes to do it. One important point to remember is that - Retail investors are different from asset managers. At least I am investing along with my private medical practice. Asset managers are under pressure to perform every quarter ( which we retail investors don’t have to). Recently, I have reduced following everyone who is in asset managing/advisory, etc services. They have their own incentives. Nowadays, I try to follow individual investors who don’t have such incentives.

3 - It takes time to know whom to follow and whom to avoid. I am still learning that after three years of investing. Yes. For us retail investors, developing your own ideas is nearly impossible. We must depend on social media and prominent authorities for the stock names. But here, we have to avoid the HERD MENTALITY and AUTHORITY BIAS. Mohnish Pabrai is a huge proponent of ‘CLONING’. However, the stock ideas that you get from your authorities are only the first step in the stock filtration process. Then, you have to apply your own criteria for investing in them.

6 - I am slightly biased here as I have gotten excellent returns from SIP investing in PPFAS since its inception in 2013. YES. This looks like a good strategy to increase your SIP amount in, say, a kind of bear market and reduce it in a bull market.

But overall, your points are pretty much valid, provided you are a full-time investor.
For a part-time retail investor like me, it’s impossible to analyse and predict future trends and invest accordingly. At least, I am not that smart.

dr.vikas

Ascendant · January 23, 2024, 3:37am

Thanks for taking the time for such a detailed reply. I am also a part time investor like you.

I agree not to follow herd mentality of retail, but we should still keep tracking what companies/sectors FII/DII are buying on a monthly/quarterly basis. That can help us in sectoral rotation.

Ascendant · January 24, 2024, 5:30pm

In bear markets when retails leave investing / the Euphoria is gone, will the P/E of Microcap and SME again go back to < 10 levels? Can the days come back when most small companies trade at P/S of < 4 ?

Will we ever get these risky Microcaps at decent valuation or has the viewpoint on SME & Microcap changed for a long time? With current valuation it seems that all of today’s microcap will be tomorrow’s Midcap. People have forgotten the advantages giant business have than these companies doing the same business in niche segment. Giants like large caps are going to take over the revenue just as Reliance did with Telecomm companies.

People are concerned about the valuation of PSU but the SME & Microcaps are the ones which need to get hit first.
Thoughts @vikasbargale ?