Who will BAIL the cat? Really Fed up now!!

Fed has rejected the bail out package and Big 2 automakers (Big cats) in US are in trouble. Sell off in auto stocks seen in all the markets including asian markets. Theory says 'sell on news and buy on rumour'. Now as the news is out we are seeing the sell off. However it makes no sense in asian markets. Next auto major will be found from asian markets and not the european markets. Not even a penny to guess that, yes it will probably be the Japanese major. Given this the takeover opprotunities in western world will be more for indian companies that are cash rich as well as japanese and chinese companies. That means in short term this will throw an opportunity to build a portfolio in this contrarian sector at lower levels and benefits will come in the long run. Its probably not a automatic but manual gear box one needs to use and buy smaller quantities at every correction without accelerating much.

PS as always consult your advisor before taking any investment decision. I will post more on the subject very soon.  These are my prel thoughts.

Deja vu

In January 2008 EMs (emerging markets) saw major correction. Analysts suggested that we are in long term bull markets so no need to panic. It was hinted that the markets will see a new high in Oct-Dec 2008. We are already in Oct 2008 and seeing worst levels of last two years.

I had suggested in my previous posts that it wont be a wise thing to average and i requested you all to be inefficient investors(what i meant was don’t try to grab a falling knife). This was contrary to what you were hearing otherwise and many of you challenged me. I am not using this space to blow my own trumpet but I want to drive the point home that I haven’t forgotten 1987, 1991 or 1999. The bears generally don’t live long compared to bulls and that’s the good part. However at this point keeping the bull on ventilator is dangerous. That will probably give more life to bears. It’s like OCD (obsessive compulsive disorder), you know what you do is not right but you cant stop yourself. When the most optimistic lot in the market will turn the back on the market, there will be a chance to see some bottom formation.

What we are seeing is compulsive buying and abuse of bull’s wisdom even in bear market. Some of my friends call me CNO (Chief no officer) or speed breaker in our close group , but what can I do? I don’t believe in consensus building when it comes to investing my money. There are those who have seen bull and bear markets but are too sensitized by the bulls so they recall only bull phases. What is happening at individual levels is repeated at corporate levels also. Corporate players should respect the cash they have in books. This is the time for them to see competitors fade away and then they can buy them at a distress value. Slower the pace of acquisition the better is the value creation. Don’t rush in. Its not your last supper.

Corporate players have to generate enough cash and remain profitable. Luckily in India we have many companies out there that are sitting on huge cash. If the rumor about the great American dream coming to an end after the elections is true then many companies will be up for sell and at unbelievable valuations.

I have always said that bull markets are driven by cash flows and bear markets by profitability. But we are in love with the names of specific companies and not very much interested in the profitability and PE ratios. Its a dangerous game. Dont buy shares because they are at 52 week low but because the company is profitable to survive in the bear market. That approach will separate men from the boys. I have seen people who advocate change but they themselves remain stubborn. Same is the case with corporate players. We will revisit Darwin and the fittest will survive.

Prior to 1929 US has seen similar events and that led to greatest fall in markets. This time it would probably be more severe as world is flatter than what it was then.

If I have to speak the language of a wise man I would say, "Spot the winners by their real or intrinsic value and not by the perceived value and you shall never lose". Amen!!

Only fools rush in

Wise Men say only fools rush in but I cant help falling in love with you (equity markets) Shall I stay (as long ter investor) would it be a sin if I can't help falling in love with you...(equity markets) Like a river flows, surely to the sea Darlin so it goes (my money), somethings are meant to be..(in the drain) Take my hand, take my whole life too...(no seriously) for I can't help fallin in love with you...--sincere apology to Elvis Presley

For those who have seen only a bull run of last 4-5 years, current levels are very exciting. But for those who are investing for long what’s happening is anything but good news. 

Just go back and read the first posting on this bog. I had advised against averaging and also requested to be lazy in your call. Those who believed it have saved money if not made money.

 

If there was an award ceremony to honor best one liner for equity markets it would probably have the following......................

 

"I am investing in the market as it has corrected more than it should and that too in short time"

"It’s a value buying at current levels"

"I think a technical bounce back is possible"

And the (overrated) statement of the decade award goes to..............

"I am buying at current levels as I am a Long term investor”

 

So what to do then.........

Did someone say penny for your thought?

Ok here is what I was thinking about--

Why do I invest in the market?

- To kill time

- To lose money

- Can't say.

So now I know what needs to be done and I get a penny from you, right? Just kidding.

 

 

PS - "Courage is the complement of fear. A man who is fearless cannot be courageous. (He is also a fool.)"

Disclaimer: I am not your investment advisor. I write because I enjoy writing. Free advice is more often than not is useless. Please consult your advisor before taking any call. 

Wait! dont buy...

The best strategy in the bull market is to buy and hold. But wait, we are not in a bull market anymore, this one will not work now.
A very senior software professional with a flair for stock market told me recently that he used to hate weekends as the market would be close on weekends. “Was it an addiction?” he asked rhetorically.
We would read all the financial papers and also subscribe to mail/sms services for stock tips. Today we don’t even bother to read those recommendations. Recently I read some of these reports given by top analysts and discovered new meaning of the terms given below:

Synergy- When analyst would realize that there is no strategy for the acquisition.
Brownfield expansion- When the 'analyst' can't bluff.
Greenfield expansion- When the 'analyst' can bluff.
Turnaround story- Partial truth by an honest analyst.
Acquisition news (source based information)- Hey guys I am lying.

Now the time has changed. We are again enjoying our weekends (TGISS). The barter is working well; the FD is bringing smiles with assured returns(I am looking only at a positive side). So what if we hold some bad shares in our portfolio, that’s ok right?

Call it BULLS shi* and move on.

Target Achieved

In my previous post i had mentioned that UPA will win the vote and market will gain 1000 points. Many of you called me and expressed disbelief...(i dont mind that as it gives rise to healthy debate). BSE has gained 850points in a single day. Overall more than 1000 points rally in two sessions.

Cheers!!

So what next??

stay tuned...

le trucage de matchs

Will the UPA govt fall? Answer is NO. Reason? Read on.

Mr President (George Bush) is signing off soon. During his stint he had series of failures in his foreign affairs which includes Iraq, Afganistan and Pakistan. This deal is his last chance to show that he did something on a foreign soil which was good for US. This is not a battle between UPA, LEFT and/or the BJP. No one matters. And what matters is that we sign the deal and make Bush & US happy.

Will it impact the market?
Answer is Yes.
Will it take the sensex back to original levels?
Answer is no.

Dont expect Crude to cool down till OBAMA assumes his office. Artificial price rigging in metal will continue( i dont believe its genuine). And all this will keep the flow of bad news steady in the market. But refrain for creating short positions in the short term assuming mayawatiji will become the PM in two days. Thats not going to happen. Better is expect 1000 point rally on a D-day or at least a good closing. Dont forget its FIIs who are deciding the direction. Just make money and move on. Afterall its not about us its about US!!

Disclaimer: I am not a political expert. Whatever i have written is my reading of the situation and it could be proved completely wrong in two days. Use your judgement before you take any investment decision. I dont want your profits and i dont share your loss. tc.

La Vie en Rose

There are two types of investors in bear markets:
· Those who are stuck in the market and
· Those who are long term investors.
The difference between the two is honesty level.

First, Sub prime and then crude sent shock waves in world markets. Just when we thought things will be OK we are seeing insane inflation numbers. (Note: Inflation is one form of taxation that can be imposed without legislation).

Tangent: Bad news in the making.....
Before we could muster the courage to fight with that (inflation) we are seeing WAR like situation (read Israel Vs Iran). I hope this doesn't start the WW III.
The way the metal stocks are moving up is really amazing. Markets tend to consider future income rather than the past performance. So are the markets considering increased demand for metals post WAR for restoration in IRAN/Israel?? And is the WAR threat real?

Coming back, what are small investors doing in the market when all this is happening? Aren't they supposed to hold their cash and stay away from the markets? They have done it in the past but something is different this time.....The basic rule is "in a bull market everyone is Genius". So does that mean our Bull market heroes are eager to lose all their booty in this bear phase?? May be "YES".
It's a very insane situation and it would be better to try something that you haven't done in last few years.... repay high cost debt(if you cant earn more at least pay less), book some losses in stocks/MFs, do not touch any new stock or a piece of real estate. What say?

One last thing....
Try to answer this simple question:
WHO IS BRAVE?
1. He who uses chauffer driven car,
2. He who invests in stock market,
3. He who buys a home (assuming it’s an inflation adjusted investment)**,
4. He who borrows money for all the three above,
5. All of the above.
** As per traditional belief.
No matter what you select as your answer you are correct.

So what next????

Take Care...and dont forget to read my previous blogs on strategy and market. Also consult your financial advisor before you take any call. I never take the responsibility for anything that has gone wrong.

Comme ci comme ça

The Road Ahead:

Indians are anticipating a populist budget from their FM. After this, there is no major event in the market that can help the BULLS. So we might witness a pre-budget rally. After this event the result season will come. However, Annual results might not cheer up the SENSEX as the numbers are likely to be stagnant.
On the other hand if the budget is not-so-good, then the BEARS will get a very strong grip on the markets. And when the BEARS are around there is no SENSE and SEX in the SENSEX.

If you are a long term Investor just have a word with a GUY who bought ‘Himachal futuristic’ shares at INR 2047 in the year 2000 and after 8 years the stock is trading at INR 30. So may be its time to go back to basics. Just have a look at P/E of a company before investing. I believe buying into Dividend paying companies won’t be a bad idea. And if you get capital appreciation too then you know you have got the ‘home run’.

Siddharth Rahalkar
rahalkar@gmail.com

Markets : Post Jan 22, 2008.

“We're all witty. It's just that many of us think of our clever remarks a bit too late”.

After the market fall (calling it a correction will be an understatement) of January 22, a collective intelligence of market players suggested that the fall was inevitable. They all believed that the fall was just round the corner. Alas, it was a post facto analysis.
Just switch on any business / news channel and you will hear analysts, observers/ advisors discussing why markets fell so much during the period. So I would skip the WHY part here. Let us now focus on WHAT should be or shouldn’t be done next.

5 golden rules of investing post January 22, 2008:

Rule 1: Don’t average
First and foremost is ‘don’t average’. So far you have been using the fall in the market to average. And it was working in your favour as the markets were showing buoyancy. Now we are in uncertain zone and there are two likely scenarios.
First one is, MARKETS WILL RISE AGAIN, if you really believe in that why average at current levels. You will anyway recover your losses.
Second one is, MARKETS WILL FALL FURTHER, if you believe in that then it’s a wrong time to average.
To sum up, don’t average no matter what.

Rule 2: Long term calls are BAD
You have always heard people saying that take a long term call. But we should not forget to ask them, “at what price?” No one knows whether the markets are undervalued at current levels or some more pain is left (it can remain painful for many years also). It’s better to be a short term trader under given circumstances. Also don’t try to be too efficient in this market. Show some lethargy, it might save some money for you especially if you are one of those investors who tend to buy when market is going up rather than down.

Rule 3: Benchmarking
When nothing else is working in your favour try benchmarking*. You can take January 25, 2008 prices as the 52 week high prices for the coming year. The volume was lowest on that day as compared to the daily volume of last few months and BSE moved up by 1100 points. Whenever you are tempted to buy anything just check the prices as on Jan 25.
*This may go wrong in case of some of the shares but will work well in most of the cases.

Rule 4: Be selective and take a sector specific call
If US recession is inevitable, metals (except precious metals) are going to under perform as the demand will be low and capacities are very huge. Power will be weak. Cars won’t run fast. Real estate might prove to be unreal. Therefore one must take a selective call on select few shares from tech, hospitality, Engineering, Media and pharma pack.

Rule 5: Look elsewhere
One need not invest in equity market all the time. One can look at Gold ETF. Analysts believe that Gold may touch INR 15 K. This means a return of 25% from current levels. Getting a similar return from the stock markets will be difficult. Set realistic targets, invest your time (remember timing is not the only important thing) to make money. You may look at Debt instruments also if you have become a conservative investor.

A wise man once said, “Markets can remain insane for longer period than the period for which you can remain solvent”.

These rules might assist you in deciding your future course of action. Take a rational call and outperform the market.

Last but not the least, try to be slightly correct but avoid gross mistakes.

Siddharth Rahalkar
rahalkar@gmail.com



Disclaimer: Consult your investment advisor before taking any investment decision.