November 26, 2014

Active patience

I think the next 2-3 years are not going to be easy, just because we are in a bull market. A few of you who decided to invest when India was supposedly going down the drain, must be feeling good about it. It is fine to feel good about it, but one should not get carried away by it.

More noise
In a bear market, as we had in the last 3-4 years, almost no one spoke about the stock market except as a place to avoid. Unless you turned on one of the financial news channels, it was easy to avoid any talk about it.

The advantage of this comparative silence was that you could think investing without too much distraction. The situation has changed quite a bit in the last few months. We now have friends, colleagues and relatives, all getting excited about the market. If like me, your acquaintances know that you invest in the stock market, I am sure you must get badgered with tips for the top ten hot stocks which will double in 21 days – small caps especially.

In my case you can imagine the disappointment  – recommending people to invest in 2013 when no one wanted to, and being cautious now when everyone and his dog thinks we are at the start of a multi-year bull run.

Feeling envy
It is easy to feel envy when you see others do better  during such times. The media adds fuel to the fire by publishing the list of stocks which have gone by 50 or 100 times in the last 4-5 years. Ofcourse, they were silent when these stocks were starting the journey.

In addition, you now have friends and other investors boasting how they doubled their money in the last six months, by buying the hottest idea.

One can abandon his or her approach and start chasing such stocks which have worked well for others in the past. From personal experience, I can tell you that this never works out (atleast for me).

Unnecessary churn
As the market touches new high, I think some people get itchy to sell stocks which have given high returns and recycle them into new positions, which ‘appear’ to be cheap.

I am looking for new ideas too, but will not do it for the sake of ‘doing something’, unless I think it will add to the overall returns. If this means doing nothing for long periods of time – so be it.

Let me explain further – I currently have around 19-20 positions in my portfolio. I am constantly looking for new ideas. As I am close to fully invested, I will have to sell an existing idea, incur the brokerage and taxes (if any) and then buy the new position. The implication of this decision is that I expect this new idea which has been analyzed for a few weeks, will do better than an existing company which I have analyzed and followed for more than a year.

There are people who are smart enough to do this consistently – I am not one of them. I do not want to take these decisions lightly. If the time horizon is 2-3 years and more in my case, it is really important that I take a little more time to think through this decision.

Being patient is never easy
I have found bull markets to be far more difficult to handle than other times. For starters, it involves doing nothing for long stretches of time, when stocks are going up and you are missing out on easy money ( that the  easy money is lost in the end is a different matter).

Let me ask a few rhetorical questions (which I keep asking myself too) – is it really important to have all the hottest stocks in your portfolio? Is it really necessary or even possible to have the highest possible returns at all times, if a lower rate of return at much lesser risk will meet your goals ? Is this investing or just showing off?

The main challenge we will face in the coming months and years is to keep our heads amidst the euphoria. It is very easy to get carried away and starting buying marginal companies showing profit and stock price momentum – I have done that a bit in the past and it has always come back to bite me.

Let me suggest a few activities to keep you busy while waiting for the right opportunity
-          Watch TV soaps, especially the family dramas. They have a lot of twist and turns too (or so I have heard)
-          Take up body building or weights. You will have chiseled body if the bull market turns out to be a 10 year one J
-          Go for long walks and walk a little more every day. If this a long bull market, you may be walking the whole day
-          If you are single, go to parties and have fun. If you have been investing in the past and not partying, shame on you anyway – what a waste of youth!

For those of you who like me, cannot do any of the above – keep faith and hope. This too will pass. The skies will turn dark again, and they will be gloom and doom. You will get your chance then J

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Stocks discussed in this post are for educational purpose only and not recommendations to buy or sell. Please contact a certified investment adviser for your investment decisions. Please read disclaimer towards the end of blog.

28 comments:

Shaji said...

Nice article Rohit. waiting for the gloom and doom day. The one activity i have stopped is watching Bussiness channel and reading pink papers.

Abhijeet Dongre said...

Great article Rohit. And very timely. Bull runs are indeed more difficult to endure for a value investor. Everyone around you is buying stocks and they are all going up. Sticking to your guns despite of that is tough.

I have a request. I have created a website www.eqax.com to help value investors screen the stocks using various ratings developed through our software. Could you please provide your feedback on it. I had sent you a mail earlier. I will resend it. I would really appreciate it.

impaddi said...

Rohit! You are a like a light in the investment jungle. A true follower of value investing. It is always a delight to go through the articles in the blog. Thanks!

Madhu said...

Nice article, Rohit.

It's nice to be reassured in these times that you're not alone :)

vj said...

One word. Brilliant.

Anonymous said...

Hi Rohit,

Brilliant is the word....and very refreshing too.....the Punch lines made my morning:))......have you ever analysed Deepak Fert....I know there are issues but the track record is good and the high divi payout can give some cushion in case of violent fluctuations.....olanning to buy some below Rs.115....If any view pls share

Regards

Anurag

Viquar Shaikh said...

Extremely good article, Rohit. Very good advice for trigger happy investors.

Prashant Hazariwala said...

yes Rohit like you i am also fully invested and looking for new opportunity. But to take advantage of this bull phase we have to find out where the bubble is?

Vikas Rana said...

Love the Term "Active Patience" :-)

As always..nuggets of wisdom..thank you.

Shailesh said...


Bull market gives plenty of sell opportunities and hence is as important as bear market which gives lot of buying opportunities.

Bull market gives reason " why to BUY" which can be leveraged in bear market and Bear market gives us reasons "why to sell " which can be leveraged in Bull Market .

We need appreciate Market cycles and keep awake in both cycles for these clues . So No family soaps for me ...

Regards
Shailesh
www.crazyinvesting.blogspot.in

Satya Prakash said...

Please give your view on Ashok Alco-chem.


--
Thanks,
Satya

Rohit Chauhan said...

Hi shaji
i think avoiding the news channel is always a good idea to reduce the noise :)

rgds
rohit

Rohit Chauhan said...

Hi abhijeet
thanks for the comment. have replied to your email

rgds
rohit

Rohit Chauhan said...

Hi impaddi
thanks for your comment

rgds
rohit

Rohit Chauhan said...

Hi madhu
thats true we are not alone ..but we are surely in a monority :)

rgds
rohit

Rohit Chauhan said...

Hi vj
thanks for the comment

Hi anurag
I looked at deepak fertilizer in the past and did not find it to be an attractive business, so just passed it

rgds
rohit

Rohit Chauhan said...

Hi viquar
thanks for your comment

rgds
rohit

Rohit Chauhan said...

Hi prashant
i personally dont want to look for bubbles ..just focus on good companies which i hold or looking for and the rest will take care of itself.

rgds
rohit

Rohit Chauhan said...

hi vikas
thanks for your comment

rgds
rohit

Rohit Chauhan said...

Hi shailesh
sure , there is always a bear or a bull market going so one can always do something if one chooses too ...to each his own.

rgds
rohit

Rohit Chauhan said...

Hi satya
never seen this company..whats the thesis ?

rgds
rohit

Anonymous said...

It's a pity most people don't get this - "For those of you who like me, cannot do any of the above – keep faith and hope. This too will pass. The skies will turn dark again, and they will be gloom and doom. You will get your chance then :-)"

I have asked so many people - "If you are in the market to buy shares, why do you want the stocks to go up??"

Satya Prakash said...

Well, Rohit Ji,

I cannot write thesis because I need to gain more experience to do that but whatever little I can say about 'Ashok Alco' and write here is this:

Into products manufacturing and trading which is used in Tiles business. Quartz and others.

PE = 3.75,
PS = 0.1,
PB = 0.99,
RoCE= 29%,
almost debt free.

Good growth with margin is visible but wanted to know if these are sustainable or not.


--
Thanks,
Satya

tanmoy said...

An extremely well-written piece. Only one thing is not clear - if one is fully invested why will he wait for a downcycle? Switching is a continuous process and does not require patience. People wait for the perfect pitch only to buy or sell.

Anonymous said...

Hi Rohit,

Thx for the response.I too dropped the idea of investing into Deepak Fert...Gas supply overhang,takeover of MCF,unnecessary venture into real estate etc is too much for me to handle.and to top it all they have not made much headway with Desai Fruits.


Regards
Anurag

Arbind K.l. Das said...

A few months before i sold cipla,aarti drug & aurobindo pharma & taken position @infra stocks but ---- my conviction i am holding it.

sanjay purohit said...

Hello,

whats your view on HB stock holding sir.

V K Ramaswamy said...

Bear market in last 3-4 years? You are kidding. Last bear mkt was in 2008. 'Not bull" doesn't mean bear.