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.
             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.

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!