Changing Gears

The period from Oct 2008 – Mar 2008 was a no brainer period – as long you could suppress the sinking feeling of watching your holdings drop everyday. As I had gone through a similar phase (though longer, but equally mind numbing) in 2001-2003, I was better prepared emotionally to deal with it. I had promised myself in 2003, that I will ignore the doomsday predictions and invest a meaningful amount of money when and if the crash came.

As they say, be careful what you wish for. I got my wish in 2008 and more. So during this period it was a matter of picking a decent company and investing in it. The valuations did not matter much as almost everything was dirt cheap, as long as one could be sure that the company would survive the likely recession and prosper in the future. This period did not last too long and we have been on an upswing since April 2009.

The situation is now completely different. I have never seen a market where almost every company, especially mid-caps and microcaps are doing well too. During the previous bull market in 2007, there were pockets of undervaluation as the markets were focused on the hot sectors – realty and infrastructure at that time. So one could find undervalued IT or midcap companies easily.

Sudden corrections

That situation has now changed completely. The correction in undervaluation for several companies is startling. I have seen companies like Hawkins cooker, VST and countless more correctly suddenly by 40-50% or more in a matter of days. This is more pronounced in case of companies which have reported good results in the previous quarter.

The upside is that most of us are sitting on pretty decent gains for the year, far more than we expected at the beginning of the year. The downside is that the number of attractive opportunities are shrinking by the day.

Modified approach

I have been running filters and have done an initial analysis on some 200 odd companies and can hardly find anything which would send my pulse racing. There are a few decent opportunities out there and one could invest a moderate amount of capital in it, but nothing in which I could commit something meaningful and be confident about it. One option could be to do nothing and wait till something really attractive comes up. The other alternative, which I may end up following, is to buy the entire set of moderately attractive ideas in equal proportions. The end result would that each one of these ideas may not do well, but the group as a whole should give me above average returns.

I plan to publish a few of these ideas in the coming weeks, provided they do not run up in the meantime. However, as I promised in my previous post, the top 1-2 ideas are reserved for those who have already contributed or plan to do so in the near future.

An update on donations

I have received a commitment of around 15000 Rs (rupee equivalent) from around 13 readers. Needless to say, that I am very pleased with the results and would like to thank them (which I have already done personally).

A Happy Diwali

Finally a happy Diwali to all the Indian readers and may all of us have a prosperous year ahead.