The
markets crashed by 40% on 23rd March, when India had 600 Covid case,
no Covid death and a lockdown had just been announced. Now, when we have a
close to a million cases and more than 20000 deaths, the market is up 40% from
its March lows with no immediate economic recovery in sight.
Whenever
the market shows an extremely irrational exuberant behaviour, I remember a
story Ben Graham, the legendary investor and the Guru of Warren Buffet, told 40
years ago that illustrates why investors behave as they do:
“An
oil prospector, moving to his heavenly reward, was met by St. Peter with bad
news.
“You’re
qualified for residence”, said St. Peter,“but, as you can see, the compound
reserved for oil men is packed. There’s no way to squeeze you in.”
After
thinking a moment, the prospector asked if he might say just four words to the
present occupants.
That
seemed harmless to St. Peter, so the prospector cupped his hands and yelled,
“Oil discovered in hell.”
Immediately
the gate to the compound opened and all of the oil men marched out to head for
the nether regions. Impressed, St. Peter invited the prospector to move in and
make himself comfortable.
The
prospector paused. “No,” he said, “I think I’ll go along with the rest of the
boys.
There
might be some truth to that rumour after all.”
That
is how the stock market works, the role rumours play in the market and how no
one is spared.
A
lot of our investors have been calling up, asking about the reasons for the defiance
the stock market is showing to all known traditional market parameters.
As
mentioned in our last Blog, various market commentators are attributing this
linear rise from the lows of March to various factors and theories like, excess
of liquidity chasing quality, “Robinhood Trades”, “The only casino which is
operational”, Hope rally, FOMO Rally , “The greater Fool Theory” and many more
reasons.
On
this occasion, I remember the famous Charlie Munger quote on the stock market
movements : “If you are not confused by what is going on, then you don’t
understand what is going on”
Frankly,
A lot of investors can see and are
experiencing the pain on the ground and are thus amazed by this exuberance of
the sharp rise after the sharp fall. Many have been also been sitting on cash
since Mid-May waiting for a correction,the inevitable “Minsky Moment”to
enter the market. Patience is wearing thin and the “investors” have started
nibbling with the Fear of Missing Out (FOMO) on this rally. The “Big Daddy” of
the market is not helping the cause with his 14th announcement in 12
weeks and other major big ticket announcements expected in all his verticals in
the coming weeks if not days.
One
thing that we learnt very early on in this market is that never try to predict
the market and especially so in the short run. There are too many variables
involved for anyone to forecast and build a short term successful model for the
market.
We
may disagree with the market but we have learnt not to question, but to respect
the verdict of the market especially so in the short term. We have understood
that the only truth about the market is uncertainty and never try to forecast
what is happening or going to happen in the near future.
Every
market movement teaches us that the market is supreme, it teaches us humility
and how much more we need to learn.
However
we are all human and still like to look for patterns; the human brain is
trained to try and simplify things, something which can help us understand what
is happening and to try and gain from it. As humans we can’t ignore and can’t
avoid using shortcuts as much as it may be contrary to a sound investment
philosophy.
However,
Let’s try and analyse what limited data is available and join the numbers with
the narrative that we are experiencing in the daily life, to get an idea on the
way forward.
Some
things in the market never change; the retail investors always get the short
end of the stick. This time too, most market reports and the limited data
available, points out to the fact that retail interest in the market has
increased with both FPI and Domestic Mutual funds reducing their daily turnover
substantially from about 20% and 10% of the market turnover in May 20 and also
in June 19. On top of that, the average daily trading volume on both NSE and
BSE is double that of June 2019, thus proving that the incremental growth is
coming from retail and HNI participation.
Most
of the surge in volume is by day traders, a fact also reinforced by the surge
in new Dmat account openings in the Apr-Jun period when more than two million
new accounts were opened and as many dormant accounts got active. Most of these
new investors don’t realise it, but trading is a zero sum game. It is mostly a
Hyper Pareto situation wherein the winners make a lot of money- say 5% traders
make 90% of the money and 95% of the traders lose money never to come back and
to get permanently disillusioned from Equity as an asset class.
Look
for value and not price. Look for the sustainable business models post Covid,
look for economic moats, look for good governance, look for low debt, and
finally look for the narrative behind the number.
Don’t
be in a hurry to invest, keep nibbling, keep SIPping; the market is not going
to go anywhere in a hurry.
Stay
invested because you can’t time the market, no one can, and don’t miss the
mother of bull runs which is definitely going to start post Covid.
As
the saying goes, “Apna time Ayega”; till then remain invested and stay safe.
Invest
wisely!
Stay Blessed Forever
Sandeep Sahni
Note: All information provided in this blog is for educational purposes only and does not constitute any professional advice or service. Readers are requested to consult a financial advisor before investing as investments are subject to Market Risks.
About The author
Sandeep Sahni
Sandeep is an alum of IIM Lucknow with a Post Graduate Degree (MBA class
of 1988). His also an alum of Shri Ram College of Commerce, Delhi
University (B.Com. Hons. Class of 1985.)
Sandeep's investing experience and study of the Financial Markets spans
over 30 years. He is based in Chandigarh and has been advising more than
500 clients across the globe on Financial Planning and Wealth
Management.
He has promoted “Sahayak Gurukul” which is an attempt to share thoughts
and knowledge on aspects related to Personal Finance and Wealth
Management. Sahayak Gurukul provides financial insights into the
markets, economy and Investments. Whether you are new to the personal
finance domain or a professional looking to make your money work for
you, the Sahayak Gurukul blogs and workshops are curated to demystify
investing, simplify complex personal finance topics and help investors
make better decisions about their money.
Alongside, Sandeep conducts regular Investor Awareness Programs and
workshops for Training of Mutual Fund Distributors, and workshops and
seminars on Financial Planning for Corporate groups, Teachers, Doctors
and Other professionals.
Through his interactions and workshops, Sandeep works towards breaking the myths and illusions about money and finance.
He also writes a well read blog;
He has also conducted presentations, workshops and guest lectures at
Management institutes for students on Financial Planning and Wealth
Creation.
He can be reached at:
+91-9888220088, 9814112988
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