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Friday, May 15, 2020

Corona Tales

The misery of fellow Indians walking, cycling, limping, dragging themselves thousands of kilometres across the country just to reach home splashed in gory vivid detail across the News channels does not make for comfort viewing.

Nor the so called 'magic walls' on TV channels that are updating deaths by the minute. Add to that a ponderous government bent on creating a circus in declaring assistance - the mantra seems to be to offer a loan to all and sundry.

Economics was my subject once and I shudder to even put a cost or the domino affect it will have in the coming months of Circa 2020.It seems to be a problem of demand sinkage. The RBI and Government are treating it as a supply side issue? The trust factor to lend to a business has been missing since early 2019 when the IL&FS crisis happened but the powers that be are yet to wake up.

Where is the focus to create jobs?Reach the bottom of the pyramid?Yes India is a vast complex country but rating agencies(especially our international friends) are not the ones that should dictate policy especially at a time when superpowers like the USA are shuddering and reacting without fear of fiscal stress.
🔓🍏
Miserable for the daily wagers, miserable for small businesses and do not even talk of the Middle class which will probably be taxed out of existence.Already transport fares are set to rise by anywhere from 30 - 100%. Income is expected down at 25 - 100%. GDP forecast down. So Costs higher,even though crude prices are at decade lows!This will affect the entire supply chain as goods in India are mostly transported by Road rather than railway.

A lot of businesses will perish. Even those that survive will be scarred. However what will be will be. I have this feeling that if we can look  beyond the short term a whole new world awaits. This long incarceration has taught us the value of social mixing even the soot and dust!

I feel that once the virus comes under control we the huge masses will unleash the pent up demand be it cinema theatres, fine dining or travel.It is about getting through between now and then that is the key.
I am a Contrarian
Automobiles will see buying
Farm Tech will be used more
E Commerce will gain further market share
Local Tourism will buzz

The Corona virus has touched us all to closely to remind us of our mortality and the transcience of Life.But do not underestimate the human race.

Thank God its Friday. Thank God I am alive to see it !!

P.S. that is my sketch of a Barn Owl. A harbinger of good luck here in the East

Monday, March 23, 2020

The Most Important Element In Investing? Part Deux

Carrying on from my previous post in February.Psychology was the most important element number One. Not IQ, not intelligence, not anything. Let us call it EQ.

Which brings me to the second element. Courage or Conviction. As we speak the nifty has gone to 7700 levels and some stocks like Mahindra&Mahindra are at a decade low some are at four or five year lows in terms of price.

The Corona virus pandemic started innocuously enough in Wuhan, China has engulfed the entire world. A billion people in India including myself are in lockdown. The bazaars having hoards of people looking to stock up. The TV full of doom, deaths and sundry.Social media abuzz with conspiracy theories.

Segregate yourself. Your mind and the person you are. The investor and the human being. It is natural to fear for the future - family, friends and the economy.

As an investor its important to find those businesses that will overcome the huge cost that a shutdown has entailed and bounce back.
                                                  SECTOR
                                                       ⇓
POTENTIAL SURVIVORS↢ COMPANIES⇔LEADERS IN THEIR RESPECTIVE CATEGORY 
                                                       ⇓
             POSITIVE      ⇄   BUSINESS CYCLE  ⇆   NEGATIVE

The technique is pretty cut and dried bt what makes the real difference is the ability to jump in when everyone is jumping out! A quote from Charlie Munger-

                                                   
You buy, how much quantity(versus how much you could), the ability to not let the stock prices going down 20% from your buy rate is what COURAGE of CONVICTION is. I know many clients whom I advised to buy in 2008 and in the short term their fear was borne out as markets fell. Just ONE year later they were ruing the missed opportunity and promising themselves and me that they would not make the same mistake the next time a so called 'Black Swan" opportunity came along.

I wish to remind them that that opportunity has come 12 years later. Will you make the same mistake?

It's so tough when there this so much negativity and so tough to think Two or Four years into the future when your friends and experts, Gurus are stampeding to exit.

At the end of the day KNOW THYSELF is the dictum.If direct equity makes you uncomfortable use Mutual Funds. For everything use %age of your Capital to invest on every dip. DO NOT INVEST YOUR ENTIRE CAPITAL IN ONE GO NO MATTER HOW TEMPTING THE VALUATIONS!

My looking glass says the Nifty can go down to 6000 levels if the panic does not stop. Predictions are pointless.

Courage.
Conviction.
Process.                                               CCP !!

Saturday, March 14, 2020

Pandenomics and Kipling

P for Pandemic.

P for Panic.

The World has gone topsy turvy over the past two months. 2020 has brought with it memories dredged up from 2008. This one was sharper and over two days we came face to face with old fears and challenges of convincing most investors to stay invested although this time many were more than willing to ride out the volatility.

Situations change. Psychology does not. It also shows how little we can really anticipate the future.As I have always believed we can try to manage risk through asset allocation and befriend volatility rather than see it as an enemy to be feared.

In December of last year it was only about the downward spiral of our economy. Now its COVID19 plus the economy.Truly so easy to cause panic. I for one felt that this was a more severe form of flu with low mortality dangerous only for those with underlying health conditions but the way it has spread and derailed economy after economy it certainly looks like it will leave its imprint over the coming two months at least.


However, I am still certain that if you are healthy it will pose no more a risk than driving in India,crossing the road or a myriad other viruses and bacteria that thrive in tropical countries.As an investor, you are getting the chance to clean up your portfolio or build a new one.

I am sharing some experiences......

Do not buy stocks that have not fallen as they too will fall

If you are risk averse then long term value is in HDFC twins,Reliance,SBI to an extent in Larsen&Toubro,Shree cement

If you truly have courage then midcaps present an even more exciting opportunity but you should  be ready to see 20% downside on your portfolio as I am pretty certain that the panic will not subside easily and we might very well go back to retest the recent lows.

If you have a knowledgable Investment Advisor do hedge your portfolio with options(especially if its got more index stocks).Options were meant for hedging and they have been badly misused to burn clients by the young so called relationship managers in the various broking houses.

Still if you are one of those with a down portfolio and no liquidity to add switch off the d... TV(business channels), go for a walk,meet those relatives you have not met for long. Cannot say holiday as India seems a safer bet than Europe or the Americas at present!

Do not stop your SiPs,investing regularly is the best antidote but do use this opportunity to see if your stocks or funds have the wherewithal to deliver when times are bad.

I am reminded of a poem from Kipling..

If you can keep your head when all about you   
Are losing theirs and blaming it on you,   
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;   
If you can wait and not be tired by waiting,
Or being lied about, don’t deal in lies,
Or being hated, don’t give way to hating,
    And yet don’t look too good, nor talk too wise:

If you can dream—and not make dreams your master;   
    If you can think—and not make thoughts your aim;   
If you can meet with Triumph and Disaster
    And treat those two impostors just the same;   
If you can bear to hear the truth you’ve spoken
    Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
    And stoop and build ’em up with worn-out tools:

If you can make one heap of all your winnings
    And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
    And never breathe a word about your loss;
If you can force your heart and nerve and sinew
    To serve your turn long after they are gone,   
And so hold on when there is nothing in you
    Except the Will which says to them: ‘Hold on!’

If you can talk with crowds and keep your virtue,   
    Or walk with Kings—nor lose the common touch,
If neither foes nor loving friends can hurt you,
    If all men count with you, but none too much;
If you can fill the unforgiving minute
    With sixty seconds’ worth of distance run,   
Yours is the Earth and everything that’s in it,   
    And—which is more—you’ll be a Man, my son!

Saturday, February 29, 2020

The Most Important Element of Investing? Part One

Here I was sitting at the office of an astute investor who shall remain unnamed but not unsung because in the two hour long dialogue we had the most important thing that he said and which I have known for many years is that when it comes to investing(of any kind) but especially equities what is critical is not IQ or knowledge or technicals or global conditions.

It is PSYCHOLOGY. Know thyself and your portfolio themes and returns become inversely proportional !

After much research,and I presume soul searching,you have bought a stock and it tanks 10%. How do you react? Do you sell if you see it going down? Do you hold on as after all you did do a lot of due diligence?Do you blame the markets, your financial advisor, the Gods in general or your luck?


Buying into a stock and in the case of a long term investor let's call it buying part of a business is easy as you please. Its where you exit is what makes it a critical left brain exercise( Oh yes I have read  Daniel Kahneman!!). It will determine your return.Holding stocks for years in your portfolio and then selling too soon or too late,plenty of examples of both - viz. Bajaj Finance,Dmart for the former and Yes Bank and DHFL for the later.

Many investors have generated multi returns in infrastructure in 2002-2006,in real estate in 2009, Metals in 2014 hence its not the underlying stock that is bad. Its your decisions that determine whether you gain or not.

I have met investors you wanted to sell every time the markets fell
I have met investors who wanted to hold on till their holdings became nil. This  vacillation between fear and greed looks cut and dried but is one of the most difficult decisions you can be called upon to make.
To see a stock that you held for 8 years and sold and then it tripled - yes it happened with HEG and Graphite in 2018

Jumping to conclusions,anchor bias,dependabilty varies from person to person. The good thing is that everyone has vices per se. None are Norse Gods blessed with 20/20 vision and that is what makes markets interesting.

Some jump in and buy at the first fall some wait for the prices to fall to their level then wait some more as they feel it might fall further.

As a Wealth Manager it is not my job to lecture on the psychology of investing. It is to try and manage risk through portfolio allocation.I ahve recommended Mid and Small cap stocks in portfolios that are down 10% in 2 years but  my SUCCEESS is that none has stocks that have gone down 30-90%  so my client investors stand to gain anytime the economic conditions get slightly better.

The Corona virus COVID 19 has in the meantime taken on a global role. The Dow and Nasdaq were looking for a reason to correct but my understanding is to look beyond the immediate scare mongering. It is true that 70% of the people might be infected in a year but its mortality rate of 2% is far lower than preceding pandemics.

Once the initial panic is over the recovery is likely to be V shaped. In the meantime its a good opportunity to shore up old portfolios or create a new one. The 1% who will have the courage to invest when there is blood on the streets will have the last laugh!

I would also suggest a gradual allocation to commodities(If  you remember my 2017 blog I was bullish on Gold in April 2017 it was trading around 28K on MCX) more on Silver(currently around $17) and Crude around $40 as a hedge.

If you are a long term investor have the courage to buy in tranches if you cannot stomach the volatility try Mutual Funds. If you do not have access to Research try ETFs. 

To have a passive secondary income its important to have equity as an asset class as part of your portfolio. Remember what happened to Debt last year ?