This is again a serious post, non serious readers can happily skip it.

A friend of many moons asked me “are we in a new normal” and that was a good question to ponder over. So he was asking me is it real that “this time it is different”? I was of course loathe to answer in the affirmative – I have visited the graveyard of many people who have said “this time it is different” and then wondered why they said it.

However, I visited the basics. Investing is when you are sure that you will gain from buying an asset. So is buying a negative yield bond investing? Investing is defined as committing capital with the expectation of receiving an income or gain. Assuming a negative yielding bond is held to maturity there is no expectation of receiving income, only losses. It is not investing. My readers are smart enough to know that, right?

is buying an nbfc at a PE of 52 investing?

are we saying that we are now in a permanently inflated market – where the Central banks of the world are indulging us by printing notes whenever we want? I am beginning to feel like a spoilt kid – go to the RBI crying – and they will print notes. Something is ROTTEN in a country where an Indian bank or an Idbi bank with 25% NPA is allowed to function. Just shows the huge, super huge margins banks have. See the profits of Hdfc bank, Cholamandalam, Kotak – just because they control their NPA better. Or at the market cap of the Bajaj finance companies – has it crossed that of Bajaj Auto?

If prices are fixed by the Central bankers (aka Central printers) why are we fundamental analysts buying bank and nbfc shares? why are we playing a game started and controlled by the printers? Should we not call the bluff and buy put options like Sameer Arora seems to have done? Or do we keep saying “do SIP and you cannot lose money”. Are we kidding ourselves?

For me investing is a process. It is broader than committing capital (mostly always cash) to make a profit.  A lot goes on from the time I find an investment idea (it could be a share that I have traded in in the past, or a share that I already have!), perform some kind of a a due diligence, and make the purchase and eventual sale. For fundamental-based investors, it’s a long bottom-up process with a healthy mixture of critical, cynical, contrarian thinking and subjectivity. It also means talking to some kid who pores over the numbers on a regular basis. Over this process, I build an understanding (hopefully!) of a business and develop an opinion of its intrinsic value. I then compare my opinion of the business’s worth to its market price. So an Indigo looked good at a price of Rs. 800. Now I am right. Also Sun Pharma looked good at 600, I bought, and now I am wrong (presumably in the short term).

Now my worry in the BFSI space is that there is just too much manipulation. By the owners, the ESOP holders, and able aided by the world Central Banks. Remember Citibank has been bailed out 7 times in the past. In the Indian context a completely unnecessary product like ULIP is creating a market cap of Rs. 200,000 crores. This is not funny. A 10 year old general insurance company with dubious reputation for understanding risk is likely to be allowed to make a premium IPO. One of the biggest risks is the pricing. Hey, I am not complaining. I am wondering why the hell am I riding that train. When the correction happens I will be sorry. Buying these IPOs at these prices is not exactly mouth watering. But hey I thought Icici Prudential Life too is over priced. It just doubled after listing!

In 1992 during the Harshad boom I sold because I did not understand why the shares were priced so damn high. In 2007 I sold Tata Power, LnT, Kotak bank, Cholamandalam – because they had run up too much and the Fmcg was available at a far better valuation.

In both cases, I looked like a genius – and it had nothing to do with the Sensex. Even now there are some inflated shit sitting in my portfolio -I am holding on because i do not know what to buy, and unlike Warren Buffett I hate sitting on cash – even though currently i am.


PS: do not ask me for tips, please.


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