There has been a heated debate in a community that has been investing for some time now about segregation. The perception is that broader markets were in short supply and that the entire index rally was declining and led by only a few shares. An important question everyone seems to be asking is – Are these price-sharing stocks too expensive? Should we buy them now? When would it all come back?
Then there’s the shooting (or should I say extension) of the same thinking process – should we buy these revolving stocks? They cost less. Stock growth stocks are expensive right now, maybe invest in them when they’re a little cool? The inevitable thought process is to try and timely enter the financial markets correctly and choose the right car.
The more I think about it, the more I think about the whole problem. My opinion is summarized in the following five points:
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a) Self-measurement is wrong: I have always believed in one basic goal – just because an item is 25x more does not mean it is cheaper and just because something is 50x, it does not mean it is expensive. The rating alone has no definitions. Also, looking at it in the context of history is not always right in a dynamic world. Balancing always goes hand in hand with growth. So, remember one thing – “good and clean” companies will not usually be cheap.
b) Time is hard, it’s hard: People are always trying to put time on the market. Always! And it rarely succeeds. Evaluation data hit H2CY19 and people continued to avoid them and continued to rise. I know a lot of people who have lost money trying to put time in the market. The central idea should be to try and spend time in the market and not time. That’s how wealth is built.
C) Seasonal taste: Third is the attraction of rotating stocks. As I call them – the taste of the season. They are important if you want to surpass any indicator on the bench, but they are rarely useful if creating long-term wealth is the goal. Long-term wealth is always made by investing in businesses that will show consistent growth from time to time regardless of the amount at which they sell. Finding this hard to believe? An example of this – one of India’s biggest clubs, the current flavor of the season, has actually produced an 8 percent return on CAGR over the past 10 years (despite a recent rally) and companies dealing with buyers in paint and FMCG businesses have released 21 percent and CAGR returns by 24 percent, respectively.
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d) Business analysis is simpler than many think: Investment decisions need to be based on sound fundamental analysis, which we all know. Most of us try to do this with whatever energy we can. However, there is often a psychological barrier. We are all very scared because of numbers, balance sheets, annual reports, etc. I’ll let you get into the trade secret – investment decisions are often easier than we think. Choose an industry that you think will grow slowly in the next ten years. Choose an industry leader. Check out the collaborative management with voila! I know I’m going to make things easier, but I believe it’s easier than it looks.
e) Quality monitoring: Corporate management is a common problem brought to bear markets. In the pursuit of a bull, people often forget it. That’s a basic mistake. We need to adhere to our discipline even if it means giving up some money and making opportunities. Money in such a stock is easily lost as it is made. Capital protection should always be a priority. That’s what we do in “Coffee Can”.
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