Wednesday, April 11, 2018

Work Through The Volatility...

The primary measure of Volatility is Standard deviation.To use jargon it measures how much the price of a stock has differed from its mean over a period of time.

Well,we are not in a finance class neither am I teaching Portfolio Theory!

I keep meeting clients who are seriously apprehensive with the ups and downs in stock prices and sometimes decisions are taken in haste.When it affects your return or wealth creation it becomes a critical decision that can have a long term affect on your wealth.

This post is meant for Indian Investors who have seen the NSE and BSE climb to historic levels and then fall by 8-10%.

This post is meant especially for those who invested in Mid, Small and Microcap stocks.

So here it goes......if a story is too good to be true.It really is!There is a stock that moved froma low of Rs 21 in August 2013 to a high of Rs 505 in 2017.There are many such.Then it promptly fell to Rs 130.

What is important here is where on the time scale did you invest? 2013 or 2017? It is critical to understand the product suite,the management,the vision and philosophy through which a company is run and to have the belief to BUY.Once bought you need believe to HOLD.When prices go up and down by 50% it really affects you at a mental level before it does financially.

My Theorem is simple:

A.Buy risk only with what one can afford,never on leverage

B.Have the mental strength to BOOK LOSS if you are sure that the story as you understood it        has changed over a period of time.

I keep meeting investment Gurus who advocate holding long term irrespective of situations.I digress completely.Every business has a shelf life and profits need to be taken off the table.A very important example is Reliance Industries that was bought by investors in the range of Rs 2000 but then for the next SEVEN years it stayed way below those levels and many got tired and sold off and some who are still holding are finally in profit.If they had but booked profit then they could have deployed their capital in other growth ideas?

The Indian market macros are good and even Trump's tweets and the Russo - China axis's response has a time tested ring to it.The situation will worsen only if Trump cannot pullback or he really starts believing that the US Army are invincible !!

I feel that the markets will in the coming years decouple from the political landscape and elections in Karnataka will be a chance to buy on dips as I see the Nifty being close to 11,000 by June 2018 end.

The consumer space emerging from the shadows of demonetization and GST is likely to grow 20%+ and even good balance sheets in the infrastructure space will be rewarded by investors.

So I am changing my stance in the short term to Buy on DIPS.