This is a slippery banana peel and I am wearing roller skates. So time in the market or market timing?

Honestly there is no single answer. Some people who have no public record of their investment track record (like me) can say whatever we want and get away.

A Prashant Jain or a Warren Buffett or a Naren Sankaran are open to full scrutiny of their investing lives and can be subject to analysis.

People like Rakesh Jhunjhunwala or a Vallabh Bhansali are partially open and partially closed, so we do not know the whole story…so what to do?

Let me start at the beginning. Long time being spent in the market is an absolute MUST. However that does not mean you will earn too well. You need the following things:

  • have a good/ great portfolio – either you create one or stick to a good fund manager like PJ, Naren, PPFAS. Ramdeo Aggarwal, or may be an Index fund, etc.
  • buy as regularly as possible, try to buy more if the MARKET PE (or portfolio PE) is low (like 19)
  • try to either buy less (or not at all) when the PE is high like 24
  • DO NOT STOP THE SIP AT ALL
  • the top up when the pe is low and the withdrawal when the pe is high should be over and above the SIP
  • the problem with high and low pe is for very very long periods the market can remain over heated
  • in 2003 the market looked high for the people who came into the market in 2002.
  • when the media says markets are finished and there is no hope, it is time to buy more
  • when experts start writing how 3 year SIP in an index fund has given lesser return than a bank fd it is time to buy
  • when TV experts wear a Tee shirt saying “Index 40,000” see if the market is standing there to take off their pants
  • who else but buffoons carry balloons with the index printed on them?
  • patience has to be learnt, and technology cycles can be short and commodity cycles long
  • a bad share in a booming industry can give better returns than a great company in a bad end of a commodity cycle
  • Quality of management is very important especially if you are picking stocks directly
  • Debt does give good quality returns like psu debt paper – that too tax free, do not ignore it at the top of a debt cycle
  • Learn to read ROCE, RONW, ROE, Dividend pay out ratio,
  • See whether the GROUP keeps coming to the market regularly for raising debt or capital

If you entered the market in 2009, you would have got good returns in 2010 itself. However if you entered in Jan 2008 you would have got good returns only 10 years later. A very important lesson is a simple lesson too – at a lower price earning market you can afford to have less patience. At a high PE if you entered the market you will have a 5-7-10 year wait to get a good return, that is all.

For people like me who can NEVER invest a BIG amount – as compared to my portfolio, the index of the MARKET does not matter. I rarely look at the market PE. I recently (reluctantly, very reluctantly actually) sold all my Hdfc and Hdfc bank stocks. I am sitting on some more cash from sale of Fmcg, pharma stocks (a part of the credit should go to PJ I just copied).

Honestly I do not know how much is sheer luck, but I believe that the market is a slave of EPS and PE. However some senseless PE can keep going up – I still hold PnG!! Do not look for very strong rules in the equity market, I can find an exception for every equity market rule.

 

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  1. Dear Subra,

    Is the best of Indian markets behind us?
    I mean all good companies are already being discovered and are trading more than 40 PE, be it colgate, P&G, Britannia and others.
    We are a tad few years later, its difficult to imagine another HDFC could born, consumer story is already well discovered; on the other hand its very easy to see so many companies would end…..

  2. Subra Ji,

    I am taking a print of this and going to read it daily or atleast thrice in a week. Thanks once again for sharing your valuable experience with us.

  3. Subra,

    Could you please share what weight was HDFC+HDFC Bank in your portfolio for us to get a better handle on your decision to completely exit (at a huge huge profit I guess).

  4. Subra Sir

    “I can find an exception for every equity market rule.”

    this is the truth, baaki sab bakwaas he. 🙂
    unless a person understand it properly, he shouldn’t be in equities.

    personally I am enjoying the market crash till now with a annualized return of just 7% on my portfolio as of today from the highs of 30%, because I am currently buying like crazy topping up the SIP’s… hope n pray I will not have a heartbreak, as I don’t need the monies in atleast 3 years.

  5. Umang,

    India is a growing economy and will keep creating multibaggers. The real skill is in identifying them. As Subra said large part of that can also be luck. The problem is we know about it only after it has become a star and don’t realise it while growing.

    I knew and had met promoters of one pharma company few times but never realised that they could become very big. Their stock has become 100 times in last few years. They have expanded big time overseas, have few USFDA approvals, etc. Now their stock looking very expensive.

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