General Thoughts

When the tide goes out

Good performance of my investee companies over last couple of months had for once made me feel like investing equivalent of ‘Bahubali’. It was only after my colleague revealed that his ‘1-share’ portfolio of 90 companies – brought for the purpose of attending AGMs – has done equally handsomely!

So much for hours of struggle with those puzzling questions!

But by no means I & my colleague alone. In fact, last few months of eye pooping performance have certainly boosted the confidence of many investors including hundreds of ‘first timers’. And this is most unfortunate experience a beginner can have.

Small bets going good early-on means that appetite for taking larger bets only increases.

And the result? ‘Tuition fee’ when things revert back to mean would be enormous for the poor fellow. At worse, it could result in loss of self-confidence and a perpetual aversion to equity investing.

Though losing money is never a good proposition but losing it early-on and learning lessons out of it is way better than other way around.

Where’s the party tonight?

During times as speculative as they are today, a new specie springs to life. They find things so well suited to their ‘capabilities’ that people cannot have less of them. They seem to be always in demand – called, tracked, followed by several of other, less enlightened fellows. You can call them ‘tipsters’.

They might not be as good as people believe them to be. And many times even they fail to understand what & why they are doing something. But still they don’t shy away from ‘guiding’ others.

Valuation is not something they burden themselves with. They look at more ‘concrete’ things like stock price and charts. Their mantra – “Go where the money is”.  This short classic from 1990’s accurately portrays their role in the character of ‘Prasad the stock picker’.

Another more aggressive species of the same genus are speculators. They are shrewd (or atleast think so). They certainly know what they are doing.

For them, it’s like playing the game of ‘musical chair’. It’s all good till the time music continues. All they are looking to do is grab a chair just when the music ends so that they remain in the game – at least for the next round.

But do they know this – in the game of musical chair, probability of losing increases successively as one graduate from one round to another. As such, qualifying players face poorer odds as they keep on adding wins. If win to loss ratio is 9-1 in round 1 with 10 people playing the game, it becomes 1:1 in the tenth round. Moving from near certain event to a random event.

From the lenses of an owned-minded investor

For a rational investor, it looks like the ‘alice-in-the-wonderland’ kind of situation. Things are getting expensive and then some more. And then again a bit more expensive. Eventually, he is done selling and has nothing left to offer to quench market’s hunger. All he has is cash and a hope that ‘this too shall pass’

While holding cash is the best thing to do during the times of irrational optimism, it does test one’s patience and, if the situation prolongs, one’s belief system. It is said that during the latter phases of dot boom during late 90s many value investors had either shut shops or converted in favour of the trend to their peril.

Only the ones with strong mind continued while seeing their assets under management dwindling down for quite a few years until their conviction was proved right.

‘Survival of the fittest’ as Darwin said.

 

Only the paranoid survive

During those patience testing times what should the owner-minded investor do? Become a bit more ‘accommodative’ with his expectations from the business thereby paying up a bit more to Mr Market? Or stay committed to his course & not loosen-up his expectations keeping up his guard?

These are challenging questions with no real answers. Only thing I could say to pacify this fellow investor is to stay vigilant, assess his expectations from the business over the longer periods regularly in order to bring them closer to the probable scenario.

 

Hindsight is always 20/20

All of us know some of those lucky fellows who for some reason or the another had an opportunity to sell out before 2008-09 crash. People sometimes envy them.

It could be to meet their personal needs (buying a home, repaying some debt) but they certainly had the last laugh.

Now, if someone today (when the market is general is more expensive than that of 2007-08) says that he is going big on cash, natural reaction is to laugh at them (mostly, silently in your mind).

How incoherent can our thoughts be!

First we make our choices; thereafter they make (or break) us

Dot com boom lasted for about 5 years. And those 5 years would be one of the toughest for money managers with an owner-like attitude towards investing.

For a moment, assume that you are given a chance to choose the future you. Do you then wish to become a tipster or a speculator and thereby make some handsome gains during the intervening period with little surety of you getting to keep those gains?

Or you wish to maintain your owner-like way of investing and bear the intermediate consequences (seeing other guys getting rich faster) with decent probability of having the last laugh?

Or try to do both and risk losing away a hard-to-maintain clear thinking mind in favour of making some speculative gains?

To each one of us, there would be different answers to these question. All we need to do is to ensure whatever we choose; we do so wisely knowing the consequences which would follow. After all, tides rise only to recede.

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