In your interest.
Online Personal Finance Magazine
No beating about the bush.
This is the fifth book in the Little Books series from Wiley, each of which focuses on describing a specific investing strategy. The four previous ones (all reviewed in MoneyLIFE) dealt with value, growth, a combination of the two and the superiority of index funds. This one deals with finding stocks that earn superior returns over long periods because they enjoy some peculiar competitive...
Obviously, one of the biggest queries in volatile times like these is regarding short-term trends and most experts were hard pressed to offer definitive answers, especially in view of the uncertain macro-economic scenario, soaring crude prices, spiralling inflation and rising fiscal deficits. Nilesh Shah of ICICI Prudential painted a rather gloomy picture by narrating the story of the ant and grasshopper with a cynical twist to depict the Indian situation. It basically says, the ant toils in summer to stock up for the cold hard winter when food is scarce while the grasshopper lazily basks in the sunshine. Come winter, the grasshopper is hungry and in danger of perishing, so NGOs, political parties and the government rush to rescue it from the consequences of its own foolishness and kill the initiative of the hard-working ant. In the Internet version, the ant migrates to the US and becomes a silicon valley billionaire!
Nilesh Shah used the story to illustrate how the shoddy government approach of handling larger issues is what puts India on the backburner. For instance, he said, many countries are oil importers and hurting from the steep rise in oil prices, but our myopic political response has aggravated the pain and caused the economy and shareholders of oil companies to suffer.
“Unless oil prices decline, we are at the risk of losing one year of returns. While higher oil prices lead to higher inflation, the populist pressure to keep oil prices artificially low, by issuing oil bonds, is increasing the fiscal deficit and at some point of time corporates and citizens will have to pay the price for this,” says Shah. Meanwhile, the market has lost momentum and, although earnings may still continue to grow because of the hard work of people and managements, our politicians and bureaucrats will make sure that the country ends up getting de-rated because of bad policy decisions. Unless oil prices correct, things can get worse for the Indian market. The only silver lining is that many people are sitting on cash and, if external factors do not deteriorate, the market may stabilise at the current level, opined Shah. Crucial advice from Shah includes not falling in love with your stocks, not waiting to exit at the top and not making the mistake of following the crowd.
Sanjoy Bhattacharyya, formerly with HDFC Mutual Fund and now with New Vernon, a hedge fund, said that 95% of the time it really doesn’t matter what the market is going to do tomorrow; it is important to hang around and wait for the correct opportunity to buy. If you cannot give much time to choosing your stocks and monitoring them, passive products such as index funds are much better for you. The much-touted research- based investing is not of much use, according to him.
Bhattacharyya had some unconventional suggestions for investors who spend time taking cues from business television or their brokers. Knowledge of history, psychology, philosophy and anthropology is far more important than knowledge of accounting or economics or computer science, says he. The three most important factors that lead to failure in investing are a sense of comfort, excitement and sensibility. Another point to be careful about is consensus. He feels that consensus brings down your returns. In order to earn better returns, it is always good to stay away from the crowd, although this may be riskier. “Investors need to keep in mind that economic cycles are not easy to ride,’’ said Bhattacharyya.
The economic outlook is uncertain; above 8% inflation, rising crude oil, huge sundry subsidy bills and farmers’ loan write-off have added to the fiscal deficit. The market is now reflecting this uncertainty. In the previous issue, we had mentioned 15,000 as one of the key levels to watch out for. At the time of writing this article, this level has not yet been breached on a weekly basis,...