12 August 2013

What's happening to stock markets, economy & your portfolio?

I recently read Rohit Chauhan’s post titledFacing Despair.For those who don’t know him, Rohit is a very capable Indian value investor with a decent track record. Many issues covered his post are also going through my mind. So I thought it would be a good idea to refer to it as a starting point.

In previous post, I mentioned that it made sense to choose companies having an inherent ability to suffer (but not die), instead of those which ‘may’ become multibaggers (but have very high mortality rates) when building the core of one’s portfolio. You can read more about our logic here.

What got me thinking is that it actually seems true that days of high growth may be over. A 3% to 5% growth rate may have become the new normal. So all calculations assuming economy growing in excess of 9% and investments returning CAGRs of more than 15% need to be redone to arrive at more sensible investment decisions. After all, its all about 'not making mistakes' in the market. This may sound too pessimistic. But this time around, problems are not in external environment alone. This time around many of these problems lie within.

And the last line of Rohit’s post is quite an eye opener. “I have a day job to support my family. I will not starve even if my portfolio goes to zero”. This statement shows that our portfolio related decision making depends a lot on how we and our families manage to fund their expenses. If you fund it through stock markets, i.e. trading etc, then your decision making may be different from mine. Just like Rohit, even I have a day job and I will not starve if my stock portfolio goes down to zero. I have taken care of the downside, if you ask about my overall wealth. As far as my stock portfolio’s upside is concerned, it will take care of itself. I have a time horizon which is longer than most people. And I am ready to wait out this storm. I am not going to lose my sleep over this. I will rather use this time to keep accumulating good stocks, great stocks and stocks of companies which are here to stay till the time when Indian economy starts looking up again.

I may be totally wrong in assuming that things may not turn around anytime soon. But that is the risk of using assumptions.

Note 1 – If you have read till here, you must have noticed that this post is using the term ‘I’ instead of ‘We.’ This post is written by Dev. The other Stable Investor (Shubhang) does not completely subscribe to this view and has recently started dabbling in short term trades. And for record, he has been making a lot of money in his trades (shorts). :-) He still maintains a long term portfolio. Just a disclosure to keep the readers in loop.

Note 2 – Some personal commitments have led to reduction in site & FB page’s update frequency. Hope to change it soon.

Regards,
Dev
______

2 comments:

  1. shashikanth bhandary15 August 2013 13:25

    Hi,

    I came across your blog a few days ago and have started reading your posts
    one by one. I am new to stock markets but would like to invest with a horizon of
    5 to 10 years.

    Can you please suggest some stocks that you think would do well(beat
    inflation) over that period?

    Also i saw your comment saying " A few more businesses which at present
    moment, are not cheap enough to own (ITC, HUL)". My question is how do i decide
    whether this stock is cheap or not.

    Currently when i invest in a stock i look at its chart for 5 yrs or more to
    see the price is high or low and to see the divided payouts. Do you think this
    approach is right?

    I would appreciate if you could give me pointers in learning to pick value
    stocks/analyse stocks.

    ReplyDelete
  2. You investment horizon of 5-10 years makes you more capable of accumulating long term wealth than those who have shorter time frames. :-) Its tough to name stocks which would beat inflation or markets over this period.

    But what you can do is to select few good businesses which
    are stable and not much dependent on debt for expansion. Such businesses may not get hurt badly in recession. And then you can wait to buy them at sensible prices. For example, HUL and ITC are good businesses. But their prices aren’t. Their prices are moving up and up because investors have no where else to put their money. And this in turn is building expectation of higher sustained growth for these stocks. A bad quarter or two and these businesses might correct significantly. But as a business, they would still remain good business to buy. That would be a good time to buy it. As Warren Buffett has rightly said – ‘You make profits at time of buying and not selling.’ Keep you purchase price so low that even if markets are down when you sell, you are able to sell at decent profits.

    ReplyDelete

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