May 17, 2009

Prediction comes true !!

I just couldn’t resist myself. I wrote in jan that the rebound would start on 22 april 2009 and then ‘predicted’ in feb that the bear market would end.

Wow! I got nailed it. I got two predictions right (ok, one is a little bit off, but give me a break). I am certified guru, soothsayer, the big kahuna and should be on CNBC !!. I should charge money for this :)

For those of you who reading this for the first time or are new to the blog – I am joking. I do not believe that anyone can predict the markets and it is a complete waste of time. If you guess enough times using all kinds of mumbo jumbo, you will get it right 50% of the times.

An investment strategy based on 50% success rate will get you nowhere.

A few more interesting points
I have noticed a few more interesting thought processes on other blogs and discussion boards.

- I like the company, but the next 3-6 months are likely to be bad and so I will wait till the performance turns
- I will wait till the election results are clear and then buy when the market crashes
- The export market is bad, US is doomed and I want to wait till everything recovers

So what is being said that one should buy when everything is bright and sunny (or at least everyone thinks so!). So the best time to buy was Late 2007 to Jan 2008. Everyone was optimistic about the world then. Now we all know how that turned out!

Maybe the above works if your investment horizon ranges from a few days to a few months.

However if you are investing for the long term, i personally think the smartest thing to do is to analyse companies in depth and buy them when there are selling at a good discount to
instrinsic value.

16 comments:

income.portfolio said...

Rohit,

Couldn't agree more with you. great post.

for a long term investor, the best way is to buy below fair value (little bit different than intrinsic), but based on fundamentals.

whether bull or bear, it does not matter if one is willing to go by fundamentals.

e.g. late 2007, LnT was trading at 1500+ or 2000+ (split adjusted), and folks wanted to buy. When it dropped below 1000+ folks expressed concern and not ready to buy. I am like are these guys nuts. 4 months back one was willing at high price, now you are ready to buy at such low price? Same goes with ONGC too. and there are many more such examples.

Manish Chauhan said...

Nice Rohit

Atleast you got it right 2 times :) , Nice job .

I would love to hear your views on , what do you think about use of technical analysis by long term investors to make better entry and exit for long term .

For example , If some one analysed a company well and finally makes his mind on Buying it for next 5 or 10 yrs . Is it a good to use technical analysis (very basic) to find next support or resistance levels or see the trendline and make better entry ?

What do you think ?

I know it will make things complex a bit , but I beleive personally that from risk/reward point of view , its a good idea .

Manish
http://www.jagoinvestor.com

Rohit Chauhan said...

Hi income.portfolio

thats true. a lot people say they will buy when the price drops, but scared when i actually happens. ofcourse the price drop is associated with some business event or macro situation and that scares them away.

it is easy to say you will be buy when the price drops, but being rational in times of fear is very difficult

regards
rohit

Rohit Chauhan said...

Hi manish
i would understand why some one would do it, but as i said in the earlier post, i dont subscribe to TA for long term.
if my holding period is 3 years+, a 10% discount via TA would not be very useful for me. however if i get the TA wrong, then i lose out in the long term.

ofcourse TA for short and medium term would make sense, but thats different game.

frankly combining TA with long term investing is really extracting the last bit of returns from the idea ..i personally am not good at it. i have adopted a much simpler approach which suits my temprament and time constraints

regards
rohit

Anonymous said...

Hi rohit,
Thanks a lot for you & your thoughts. I came across you & i am enlightened.

now guide me..couple of my stocks more than their Intrinsic value(which i calculated before buying them). Like Thermax, Suzlon i have more than 100% profit (all margin of safety gone :) )

Instead of waiting Thermax to come at 180.. it's now at 315..i am still waiting with big amount in hand.


Also my Bank of Maharashtra workaround did exceptionally well. I bought FD like shares assuming 10% divd. for 5 years & end price 30 at 5th year. I calculated 15% flat returns every year... But it all seems to be come true within 2 months, 15% Divd plus more than 50% appriciation.

How do you deal with such situation.


regards
Ani

sumi said...

Hi Rohit,

Congrats on the correct predictions. It is indeed panic buying right now.Since I am studying value investing right now I am completely left out from this rally. But I guess when you are working on intrinsic worth and discounts it is better to not get carried away with the herd

regards
sumi

VISHNU said...

Hi Rohit,

I don’t think bear market is ended. Lot of industries are still in Stress. I like to remind you of Seth Klarman’s 2 quotes that “Intrinsic values are themselves are down now” “Rules are subject to change” (ESP banks and Financials). Nevertheless it’s still good time for bargain hunters.

Regards
Vishnu

Manish Chauhan said...

@Rohit

Thanks for the comments . May be the investor I am talking about is more interested in being active in markets (trading wise) .

Manish

Rohit Chauhan said...

hi ani
i guess we all were lucky ..i would not call it foresight , but luck. i for one did not know that the stocks would go up so soon.

In case the stocks i own, once they cross 100% of intrinsic value, i check if the growth in intrinsic value would be high enough for me to hold on or start selling

regards
rohit

Rohit Chauhan said...

hi sumi
there will be more opportunities in the future. it is more important to manage one's emotions and get carried either by fear or greed like now

regards
rohit

Rohit Chauhan said...

Hi vishnu
i am just joking ..i was being sarcastic when i wrote the emails on the end of bear market or market turnarounds.
i agree there is still value - at least as of today - in midcaps and small caps. large caps have gone beserk ..so lets see how it plays out

somehow the reaction to the election has been crazy

regards
rohit

Rohit Chauhan said...

hi manish
you are right ..i am talking about a long term investor.
i have no idea of how to do trading and have no aptitude for it

regards
rohit

Vic said...

Hi Rohit,

Great post as always!! Yes, you must be a happy man..especially having picked ur stocks at ultra low prices. :-)

I have a question regarding Balmer since it is a PSU. I read it somewhere that Disinvesment of PSUs will be back since Congress is in power now.

What are the possibilities of this happening and how would it impact the company/stock in case it happens? Did you ever see experience with any of your holdings in past?

Thanks,

Vic

Rohit Chauhan said...

Hi vic
i have bought at low prices when they were available, not necessarily at the lowest. my buying is quite regular and not centred around specific levels of the market. that said,yes the run up in prices is good.

regarding balmer lawrie, i would guess the price could jump ..but you have to understand that balmer is well run company and divestment will not change the fundamentals. in addition i dont have any experience around divestments as none have really happened in the last 5 years. so remains to be seen how it will play out for PSUs.

regards
rohit

Charu Gupta's Blog said...

Hi Rohit,

Well written and i completely agree with you. I'm also a Value Investor and believe in long term investments.

But while I was analysing some companies from the Cement industry I realised that since the industry is highly cyclical, it is difficult to take a 10 year horizon. The cycle usually lasted 4-5 years in the past. Considering the growth path for India, even if we discount the cycle to be of a shorter length, it does not make sense to give a very long term pojection. Because during the cycle the performance of companies is very bad, even negative in some cases and the PE ratios are also very low. I studied some companies which were 30-40 years old!

What do you think about such companies who belong to very cyclical industries and what time horizon would you choose for predicting their future growth rates? And would you suggest to buy such companies around the end of the downtrend cycle, i.e. if one can comprehend the duration of of such cyclyes.

Thanks and regards,
Charu Gupta.

P.S. you can check my blogs @ http://idostocksmyself.wordpress.com/?p=8&preview=true

Anonymous said...

The market is likely to retest its previous lows by September of this year. Extreme Optimism will be counterbalanced by extreme pessimism.

Nifty would take only 5 trading sessions to break 3000 on the downside.