Tuesday, May 22, 2018

A Leap of Faith

The "Indiana Jones" fans amoungst the readers will realise where the header comes from!The wiles of ancient civilizations and the pitfalls of modern day stock market is pretty similar.

Taking off from my previous post that there are no longer any safe havens for investors and risk needs to be undertaken to achieve higher returns I would stress on the fact that sometimes we make assumptions on the available information to evaluate investing options.

The macro situation looks quite horrendous with crude oil above $80,unsettled political situation in the Middle East and the first vestiges of a united opposition to India's Modi coming together to batter the so called growth stocks in the mid and small cap space over the last One month.The Nifty may have fallen about 1.5% but the midcaps have seen a steep 20% correction on average some falling 50% or so.

This is the time when convictions are tested as the lack of buying interest presents a huge test for illiquid counters even though those businesses' future may be just as bright as it was six months back.

This is the time to take a leap of faith(off course with thorough research) and go with ideas that one feels will continue to grow at 15%+ YoY ROE with a strong EV/EBITA and products that show a minimum 5-8% sales growth YoY.

I think we all know the names of such stocks but its difficult to build the conviction to buy and watch the prices fall and buy again.

In my 20+ years in the financial markets I think psychology is still hugely underrated.Many,let me quantify by saying most investors walk away when they are so close to finding the edge.The difference between holding on to duds and selling winners is a very fine line.

I have been a fan of Mahindra & Mahindra and after holding on for targets and seeing the prices turn just 20% from targets I sold for the funds I manage to find it going higher even with the markets roiled.

There is just no easy way or a formula and I guess that is what makes markets what they are and why there are millions of traders,analysts,experts et all.

Again sticking to your area of expertise and not going into a bruising ego battle against the market is best way not to lose motivation or be frightened into pulling out investments when they fall.

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