Cholamandalam Finance, EID Parry, Carborundum Universal, Tata Motors, Cummins….

just an observation and back patting myself….

PS: i MAY  have a trading position in these shares too…

I SURELY DO HAVE AN INVESTMENT POSITION IN ALL THESE SCRIPS…and have had an investment position for at least a decade…and have had trading positions very regularly too

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This is not easy to think or accept. People who continued their SIPs would have also done badly – no doubt about that. Your opening portfolio (Jan 2011) would have been down, and so would have the SIP figure.

Obviously at this juncture we can ALL see the negatives and we all KNOW that the market will go down, do we not!!??. (Hey there are some readers who do not get the sarcasm, sorry). Well when on TV and other media you look at the ‘experts’ – their views are worth hearing…

-Markets will go down to 12000 (no clue why there is such a consensus for this number!) and the more optimistic ones are predicting 18000. Of course the very hardy, never say die guys predict 20,000.

Frankly I do not know what will happen.

However a bad year is rarely followed by a worse year (yes it has happened in the past, but I am taking a calculated call!)..which means a NEGATIVE 25% will not be followed by a negative year. So assuming that the index’s starting point is 15,500 for Jan 2012 (I am writing this on 2nd Jan at 9.30am and this is the current sensex), I think seeing the sensex at 19500 is not impossible. This means that the current year’s return would be about 25% – just wiping out the 2011 losses.

Will the Re – US $ be at 60? not sure. However if many NRIs start keeping their money in India (remember the rates of Nri deposits have improved) and the software exports do really well, we could see the exchange rate at 52 instead of 62!

Not guessing the sensex, but just punting on the fact that the IMMEDIATE past has NO BEARING on the IMMEDIATE future. Simple, is it not?

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The Sensex may have given 19% returns over 33 years, however it may not have given 19% in any particular year! This is fairly simple – the standard deviation is quite high, and good years are followed by bad years. Simple.

In the year 2011 the sensex’s performance looks bad because of the poor performance of Reliance, L&T, Infosys, Icici, Sbi….and was cushioned by HUL, ITC,..etc.

Unfortunately for sensex watchers Reliance and Infosys – both very good P/E managers – and perhaps EPS managers too – seem to be in their mid life or descent. This means that even with all their media management, the market’s respect for these companies (read PE) is not likely to increase in the near future. Infosys is in a mature industry with not too many entry barriers and Reliance, well, is Reliance!

Icici bank does not have a single promoter – this means there is no single person ‘managing’ the p/e and its EPS is not really respected. The NPA of Icici bank and SBI will always be a worry for the market – and hence the p/e ratio is likely to be below the industry average. L&T the story is somewhat similar – and the biggest shareholder block could be the employees including the Managing Director and Executive Directors.

Again L&T’s price earning ratio is not very easy to sustain, and it is also a company on its decline rather than a company on its growth. Its finance arm is not likely to show any great performance in the market – and this will make listing its software subsidiary difficult. So there is no great value capture by L&T also.

Given the problems that Reliance, Infosys, L&T, Sbi and Icici bank face, it seems to be difficult for the Sensex to give some fantastic run away performance.

However markets are supposed to surprise or shock us. Clearly there is no trend in these nos…

47%, -52%, 81%, 17%, -24% which are the returns on the sensex in the past 5 years from 2007 to 2011………

OR IS THERE A TREND THAT I CANNOT SEE?

Now to the more important question – what will the sensex do in 2012?

Well frankly, I do not know. I am brilliant enough to know that I do not know.

However, it could tank another 18% – and will cause pain to people doing SIPs for the past 4 years also. Or it could just come down 3-4% but in a very painful process of going nowhere on a month to month basis – giving nominal returns on SIPs.

Of course it could go up 24% – just wiping out the 2011 losses – or it could go up 40% and preparing for a fantastic fall in 2013! All are possibilities – and all of us will know with 100% accuracy why it did what it did. However many of us know that we do not know. The others are predicting.

Remember the market does what the market has to do – fluctuate. You have to do what you have to do – keep your head on your shoulder. Not easy, but very profitable!

HAPPY NEW YEAR TO ALL OF YOU!!!

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It is always easy to predict – especially if you have nothing at stake!

The world is today very worried about the Euro problem – because it is much bigger than the US problem. In fact the situation is so bad, that US has even decided to teach Europe about coping with the crisis…LOL.

In 2006 you saw NINJA loans (no income no jobs), in 2008 you saw the property bust in US. Now we are worried about the falling prices in UK.

In the year 2012 we will be panicking about the falling prices of real estate in CHINA. Not that it is not falling now, but it is expected to HARD LAND much worse than the soft landing that the government of China thinks it can manage.

China is a funny country – people have the money, but CANNOT spend. So they are investing. When they invest, they create a bubble. If the bubble bursts, there will be an issue!

So if 2008 was lost to US and 2011 to Europe, will 2012 be lost to China?

PS: did you notice I did not predict the Sensex or the Nifty? So any one can reach 12000 – be ready to hear my saying ‘I said it here first’…..

http://www.forbes.com/sites/gordonchang/2011/11/06/property-prices-collapse-in-china-is-this-a-crash/

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Let me first define best advice:

• if you hear it in 2000, 2010 or 2020 it should sound correct
• the regulator should not find it offensive
• it should not talk about any one particular company or sector
• if it is N S E you should talk Nifty…and if it is BSE …Sensex
• it should not offend anybody
• it should not be scandalous

is it easy? Well initially I thought of this as difficult…but here are a few tips on what to say :

• Equity investments are for the long term
• Stay invested for long term – when the market turns upward, you will benefit
• Keep investing in the short run and long run, you will benefit
• Buy only good shares
• Do your fundamental research and analysis before you invest
• Do not invest in a small company unless you are sure about the promoters
• If you had invested Rs. 1000  in 1980 in Wipro today it would be worth more than Rs. 30 crores
• Read the prospectus before you invest
• ……………and many more…………..

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Over the last 20 year period the Standard& Poor Index returned an annualized gain of 9.1% – which means SIP returns should be superior. The Individual Investor got a return of 3.8%.

The Bond Investor got a 1% yearly return vs. an annualized return of 6.9% of the Barclay’s Aggregate Bond Index.

Why do retail investors under-perform by such a HUGE MARGIN? Well many readers of this blog may have different views, but the retail investor, in general is a poor investor.

What are the normal mistakes? – Behavioral Investment experts have their reasons, the Media has its own reasons, and I have a combination of all of this!

1. Overconfidence: So many investors think it is easy to beat the index-it is not funny.

2. Amazingly stupid half investment lessons: – ‘If you invest in a good company, it will always make money in the long run’. Orkay, Nirlon, Mafatlal, Silverline,…are all companies which were once upon a time in the index. Now they are not. This is called survivor bias.

‘My father made money in Infosys, so will I’ – replace it with ‘Nirlon’, ‘Orkay, ‘Patheja Forgings’ – and you will understand what I mean. History repeats itself, sure – we do not know how often, that is the problem.

3. I cannot see ahead, so I will look in the rear view mirror and drive: God bless the driver/investor – considering that we are driving around in a mountain.

4. Recency effect: ‘Market is going down’ – actually what they mean is ‘Market has gone down’ – now will it go up in the recent future? The true answer is I DO NOT KNOW. However retail investors will tell you ‘Market is going down…I think it will go to 15,000 on the Sensex…..what do you think Subra?’ If I keep quiet it gets reported as ‘Subra also kept silent…he must be in agreement’. Vow, actually I am not in agreement, I am wondering how people can make such statements, dude.

5. Herd Mentality: My brother in law just sold all his shares, and mutual funds and bought a flat….and the price has already gone up by 10%!! He tells me nothing will happen in equities for the next 3 years, SO I AM BUYING A FLAT. Oh! I forgot to add – he is a real estate broker.

6. Looking at the market everyday and getting confused. Listening to the experts and wondering who is an expert.

7. Running a 42km marathon like 420 races of 100 meters!

8. Fear – ‘My father lost Rs. 3 lakhs in Harshad Mehta scam’, ‘My brother lost Rs. 5 lakhs in Ketan Parekh scam’, ‘My uncle’s broker cheated him off Rs. 5 lakhs’…- all ‘fear indicators’ . Actually look hard enough.

The guy to be blamed is the same guy whose face you saw in the mirror this morning while shaving. Not Harshad Mehta, not SEBI, not the Prime Minister, not your wife, not your advisor…..just the bloody guy whose face…..LOL!!!

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- Domestic growth has slowed in recent months to pretty low levels, and a senior banker saying be happy with 6% growth next year

- A fallen and further falling Rupee?

-Inflation stuck at double digits – latest is 10%!

- RBI’s constant raising of interest rates have NO impact on inflation.

Foreign investors have bought just a net $800 million of Indian shares vs.  $29 billion last year!

Korean won has slipped about 1% this year

Malaysian ringgit is down around 2.4%.

The rupee has fallen 14%, ONLY  Turkish lira, down 17%, and the Kenyan shilling, – 15% are behind us.

In October, India’s trade deficit rose to $19.6 billion!

Exports are falling, oil, gold, and coal imports are hurting bad…

Slow FDI and slow FII – The benchmark Sensex is down 20% this year.

Indian government has  raised the limit for foreign institutional investment in sovereign and corporate bonds by $5 billion each. Impact on the currency? Marginal and short term!

The great Mani Shankar Iyer says we should not let the currency float…and should be in the pre 1991 era.

For any good thing to happen, we should get rid of the Congress, or ensure that the Congress gets rid of the ‘left’ inside the Congress.

My vote is for a grinding to lower levels of the sensex – no dramatic fall…but a slow process of 16500-15000 but via 17000 – so SIP will work, do not try timing…

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1. Should I buy more gold? Experts are telling me it will give 25% return in one year.

2. I earned 20% return on a Non Convertible debenture…should I put more money in that?

3. I am 70 years of age – should I sell ALL my equities and shift to debt?

My answer to all the 3 questions remained the same. I need much, much more data than just this question to be able to answer these questions.

So here is an attempt:

If your view is ONE YEAR and you want to be in EQUITIES – invest 25% of your money and wait for the European crisis to be closer to a solution. We are nowhere near the solution. If the market goes to 4800 (nifty), invest at least 50% of the corpus..at 4500 invest all your money.

If you have a THREE year view, invest 50% and wait …be ready to invest on the way up or down..and quickly.

If you have a FIVE year view, rest assured this is the best asset class. You will see at least 25000 sensex before 2016. Not a bad return from 17500 (sensex).

rarely do i stick my neck out…but here it is!

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Too many pundits and journalists jump to declare ‘The market is now in a bear phase’. My left foot. None of us know whether the market is in a bear phase or in a bull phase. The day I finish saying the market is in a bear phase, it can go up 5% and make my prediction look stupid. Even if it was a bear market which pundit knows whether it will remain there or will it go up?

The whole market argument (or rather pundits argument) about bear market and bull market is completely futile and absolutely useless. Markets always have good shares to buy and bad shares to sell. Check your portfolio – see what is worth selling off even today because the management is not good or the products are not selling. Shares like Gillette, ITC, P&G and Colgate also loose sheen when the markets are doing badly. However these companies are NEVER available at a price earning multiple of 10 – if that is what a bear market is supposed to mean. Does it really matter that the index is at 18000, 17500 or 15500 – but the shares that YOU want to buy are still quoting at a price earning ratio of 28 – albeit lower than 31? If you were a buyer at 31, you can buy more at 28!

Strategy for bear markets:

Let us assume that we are in a bear market. Should you rejoice or feel sad? Well depends on whether you are in an investing mode or you are in a withdrawing mode! Most people I know (from age 23 to age 84!) are still in investing mode..so a bear market (or a market are depressed at the current stage) is a blessing. I have no clue which share is a good buy and which is a good sell ..but if you are in such a doubt pick up an ETF of the sensex or the nifty.

Pick a real low cost etf (if you are aggressive pick the Sensex etf and if you are not so aggressive pick a Nifty etf). If you are already an investor in a mutual fund, just pump in some money into the funds that you are already investing in.

A SIP is a good idea, but so is picking up some stocks which you understand…However I do not think markets are at mouthwatering levels for many shares, so please be careful…Remember roses are surrounded by thorns!

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• As we had said earlier, the market is now decoupled. Even though the markets went down yesterday in US Indian markets have gone up.
• Indian markets have gone down, in keeping with Global Trends…Kospi is down, Hangseng is down….so is Nifty
• Markets are down…this is the single biggest fall..it is down by 500 points (the shrillness in the voice remains the same whether the index is at 9000 or 21000 for the sensex or it is for the 4500 Nifty)
• It is a great time to be buying gold….everybody is buying it…and experts say it will reach…..by Dec…
• Do you realise that Mr. Ratan Tata has lost Rs. 900,000 crores in market capitalization in the past 6 days?
• Markets have hit a low of 4800…and there is a good chance that it will hit a further low of 4500…
• Markets have hit a high of 20840..and is within a spitting distance of the previous high…

I am convinced that I can create a software with about 50 sentences which it will pick and produce stories.

Now let us look at the sentences in an astrological mag:

• Those single may be attracted to a person of the opposite sex
• Children will bring joy for some
• Children do well academically, but take care of their health
• Parents health may cause concern
• Job will be fine, but boss may cause some irritation

Get the drift of what I am saying?

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