Its funny when you watch media – read or watch the noise. One often heard statement is “Company is doing well, profits are high, it is a good time to be adding xyzee to your portfolio. According to media wisdom, strong profits and a healthy economy are good for stocks. We have heard it so many times that we would believe it. Completely. In fact, if you believe that the American interest rates will hover sub 4, and Indian interest rates are sub 6…it must be a heady cocktail. This is clearly one of the most popular theories used to encourage equity ownership.

What if I differ?

When I do a simple analysis of my purchase of shares – I realize that I bought it when the company was doing BADLY. Not when it was doing well. I bought Cholamandalam at Rs. 60 there was a good chance that it would skip at least one dividend, if not more!

When I bought SBI at 180, I was told it will go to 150, when I bought Hindalco at 85 it was expected to touch 65!!

NONE OF THESE shares were bought at the peak of THEIR PROFITABILITY.

When I bought Sun Pharma at 800…its profits were high. The price got higher at 1200 – or at least the PE got higher!

So when is it a good time to buy a share? at the highs or at the lows…

When I look at my losers or bad performers, it is clear that my purchases in a ‘profitable’ company when everybody said it is a good buy were just bad decisions! Clearly, at the time of purchase the businesses were either generating peak profits or their prospects looked great! Think of Page Industries?

Profit reversion was a THE contributor to many of my past investment victories and defeats.  Should the “profits are high” argument frequently used to buy shares, actually be used as a warning bell to sell?

I do not know. When I bought Indigo and Apollo Hospitals they had taken a break from their upward journey – on the basis of good results. So Indigo at 800 odd and Apollo at 990 were shares where one could make an entry during a small dip in the company fortunes. Not a bad strategy – a little lucky perhaps.

In the US the Fed is clear that it will be able to increase interest rates – they have no doubt about that. The question is how much and how fast. If it is fast and furious, the world will see prices of inflated shit come down. That will be a worry for most of the countries. However, if money comes out of Iran, Iraq, Dubai, Germany – where would it go? Would it go to EM or to the US? Looks tough for the EM like us.

So what is this market?

It is a market where you will need more patience, and a huge ability to sit through bad times. It is a market where Interest based products will not give a good return – i.e. the longer term debt products. It will make sense to be in the shorter term debt products for at least 6 months.

It is a market where investing in equities will be good ONLY if you have a long time frame, be specific to some industries. These companies should be currently doing badly and you should see the green shoots which the others cannot.

It is a market where you will NOT REGRET not buying. Great time to be in short bond funds.

What am I doing? I am looking for good buys in direct equity. Maybe trade. I need to sell Nagarjuna Fertilizer…for example!! today.

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