Friday, September 2, 2011

Portfolio Notes 05.11.2010

2 years ago I had circulated the attached note at a time when if you were investing it was like looking into the barrel of a loaded gun or catching a falling knife! Well a lot has changed since then and we are now looking upwards at a Sensex of 21000!

Uncertainty has finally given way to exuberance. After 32 months the Sensex crossed the 21,000 mark once again. India’s growth story has always remained strong. But, for the markets to move up, FIIs with their large pockets have to believe it. And that they did. FIIs came back with a bang. Their investments crossed US$ 18 bn by the end of September 2010. This surpassed the 2007 level, at the height of the bull-run.

While the anchors of all business channels and their ‘experts’ will be beaming and business news paper headlines will be cheering, I advise caution at these levels. You have to be cautious because you always have to worry about the pitfalls which may come in the future. At the end of the day, you have to balance your risk and return

At the same time, you always have to be confident about future. It is very rare to see a pessimistic man making money in the market. It is always the optimism which prevails.

• DO NOT IGNORE this market thinking it is too high PARTICIPATE through SYSTEMATIC INVESTING.
• Have a close look at your ASSET ALLOCATION ie how much money of your total wealth is in equities?
• TONE DOWN your expectation of return from the Equity Markets. Over a longer term (5 to 10 years) will deliver 15% plus returns.
• BELIEVE in the Growth Story of our country and you will prosper. 05.11.2010 – Sensex @ 21004 Highest since Jan 2008

Portfolio Notes 11.10.2008

The Indian equity market, like markets around the world, has been falling daily. All our existing investments have been losing value rapidly, and investors like you have questions and may not be finding answers in all the noise created by media‘experts’ and news-papers. At times like these, it is prudent to refer to some words of wisdom from the richest investor in the world, Warren Buffett:

“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”

We have now been granted that opportunity! How we deal with it will decide what kind of investors we are. Remember, you have not made a loss (or profit!) until you actually sell your shares or mutual fund units. So we all have a choice now – panic and lock in our losses or stay calm and profit from current events.

“Look at market fluctuations as your friend rather than your enemy; profit from the folly rather than participate in it.”

The largest and most profitable companies in India are now available at half to onethird
the price they were available at in January 2008. Are these companies really worth that little now? No. Were they worth their January price either? Probably not. Fair value was probably somewhere in between but we are way below that point now.

Yes, what is happening in the US and consequently around the world is serious. Will it affect the profitability of Indian companies? Only to a certain extent. Will these companies cease to be profitable? No! At most, profits may decrease slightly for a year or two or simply not grow as much as earlier expected.

Will their profits increase over the next five years? Very likely!

Share prices today are falling because there are more sellers than buyers. Financial
institutions around the world need cash desperately and are selling their shareholdings at any price. The smart investors, like Warren Buffett, are busy buying.

You should be too. The only caveat: Only invest money you will not need for at least three years, preferably even longer.

Invest today and in five years you will be thrilled you managed to buy Mutual Fund units so cheaply – exactly as those who bought 5 years ago still feel today.

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.” 11.10.2008 – Sensex 10,527 went down to 8509 by end Oct 2008