Tag - investing

#Truths about investing 103- Think differently

This is taken from a presentation by Howard Marks Co-Founder of Oaktree Capital. This is the third article in a series. Mr. Marks makes concise and incisive comments about the art of investing that can help amateur and professional investors alike.

You have to think in a way that departs from the consensus; you have to think differently and better. The price of a security at a given point in time reflects the consensus of investors regarding its value. The big gains arise when the consensus turns out to have underestimated reality. To be able to take advantage of such divergences, you have to think in a way that departs from the consensus; you have to think differently and better. Any time you think you know something others don’t, you should examine the basis for that belief. Ask Questions like- “Does everyone know that?” or “Why should I be privy to exceptional information or insight?”

It isn’t the inability to see the future that cripples most efforts at investment. More often it’s emotion. Investors swing like a pendulum – between greed and fear, euphoria and depression, credulousness and skepticism, and risk tolerance and risk aversion. Usually, they swing in the wrong direction, warming to things after they rise and shunning them after they fall. Technology now enables them to become distracted by returns daily. Thus, one way to gain an advantage is by ignoring the noise created by the manic swings of others and focusing on the things that matter in the long term.

To be a successful investor, you have to have a philosophy and process you believe in and can stick to, even under pressure.

Since no approach will allow you to profit from all types of opportunities or in all environments, you have to be willing to not participate in everything that goes up, only the things that fit your approach. To be a disciplined investor, you have to be able to stand by and watch as other people make money in things you passed on. Every investment approach – even if skillfully applied – will run into environments for which it is ill-suited. That means even the best of investors will have periods of poor performance. Even if you’re correct in identifying a divergence of popular opinion from eventual reality, it can take a long time for the price to converge with value, and it can require something that serves as a catalyst. To be able to stick with an approach or decision until it proves out, investors have to be able to weather periods when the results are embarrassing.

Source- Truth’s about investing by Howard Marks

Asset Multiplier Comments:

  • Investors with a longer time horizon are less likely to make emotional judgments. A properly allocated portfolio has the appropriate mix of equity and fixed-income asset classes to provide an investor with the highest chance of success. This means retiring comfortably without running out of money.
  • A sound investment philosophy is founded on a thorough knowledge of markets. Determine the return you require, the income you will need for your retirement expenses, and the degree of portfolio appreciation you need to achieve that. Selecting a plan and adhering to it is also part of your investment philosophy. Passive investing might just be your investment philosophy.
  • Adhering to your philosophy entails avoiding emotion-driven buy-and-sell choices and sticking to your intended allocation regardless of market movements. The whole objective of allocating according to a strategy is to prevent hopping in and out of assets on the spur of the moment.


Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”


This Week in a Nutshell (15th – 18th November)

Technical talks

NIFTY opened the week on 15th November at 18,141 and ended the truncated week on 18th November at 17,765. The index made a weekly loss of 2.1%. On the upside, 17,993 could act as resistance while 100DMA of 17,020 could act as a support. RSI (14) of 44 indicates the index is nearing the oversold zone.

Among the indices, AUTO was the only sector that ended the week with gains of 0.4%. METAL (-5.3%), PSU BANK (-3.4%), and REALTY (-3.3%) led the laggards.

Weekly highlights

  • Raring agency Fitch Ratings affirmed India’s long-term foreign currency Issuer Default Rating (IDR) at ‘BBB’- with a negative outlook. The negative outlook reflects lingering uncertainty around the debt trajectory. The Agency has suggested wider fiscal deficits and government plans for only a gradual narrowing of the deficit, putting a greater onus on India’s ability to return to high levels of economic growth over the medium term to stabilize and bring down the debt ratio.
  • S&P Global Ratings has predicted that the Indian economy will likely grow at 11 percent in FY22 but flagged the ‘substantial’ impact of broader lockdowns on the economy. S&P said the control of Covid-19 remains a key risk for the economy.
  • The Nasdaq Composite Index closed above 16,000 points for the first time, while the Dow Jones Industrial Average had a second successive weekly loss (-1.4%). The S&P 500 ended higher following strong retail earnings and positive signs for holiday shopping.
  • Over 4.4mn Americans left their jobs in September-21, according to the Labor Department’s Job Openings and Labor Turnover Survey. Incentivized by wage gains and other attractive terms offered by employers desperate for talent, several Americans are leaving their jobs. This has made it challenging for employers to fill positions while driving up compensation and inflation.
  • Crude oil prices fell to a six-week low following news of Australia’s lockdowns and surging Covid-19 cases in Europe threatened to slow down the economic recovery. Investors weighed a potential release of crude oil reserves by major economies for a fall in prices. Crude Oil futures settled at USD 75.7 a barrel while Brent Oil futures closed at USD 78.5 a barrel.
  • India’s wholesale price inflation (WPI) jumped to a five-month high at 12.5% in October. This month’s WPI broke the 5-month downward trend as prices of manufactured items and fuel have increased. High petrol, diesel, and cooking prices drove fuel inflation to 37.2%. high prices of basic metals, textiles, plastics, and edible oil drove inflation for manufactured items to 12%.
  • Prime Minister Narendra Modi announced that the three farm acts would be repealed in the upcoming session of the Parliament. The Prime Minister said a committee would be set up to make the minimum support price mechanism more transparent and effective.
  • Foreign Institutional Investors (FII) continued to be net sellers this week, selling shares worth Rs 44,109 mn. Domestic Institutional Investors (DII) continued to be buyers and invested Rs 39,265mn in Indian equities this week.

Things to watch out for next week

  • US markets are waiting for President Biden to nominate who will head the central bank after Jerome Powell’s term finishes in February-2022. The US markets have a truncated week next week as markets will remain shut on Thursday and Friday on account of Thanksgiving.
  • The Indian equity market is likely to see more selling pressure next week amid the rising US dollar, and the beginning of the Fed Reserve’s bond-buying program. Results for September-21 have been announced by most companies. Action is likely to be stock-specific till the end of December.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Luck Vs. Skill in Investing

Jeremy Chia reminds us that investing is a game of probabilities. In any game where probability is a factor, luck undoubtedly plays a role. This leads to the age-old question of how much of our investment performance is impacted by luck?

Is an investor who has outperformed the market a good investor? Similarly, is an investor who has underperformed the market a lousy investor? The answer is surprisingly complex.

Long term stock prices tend to gravitate toward the present value of the company’s expected future cash flow. However, that future cash flow is influenced by so many factors that result in a range of different possible cash flow possibilities. Not to mention that on rare occasions, the market may grossly misprice certain securities. As such, luck invariably plays a role.

Skill is one aspect of investing that is hard to quantify. However, there are a few things Chia looks at. First, we need to analyse a sufficiently long track record. If an investor can outperform his peers for decades rather than just a few years, then the odds of skill playing a factor become significantly higher. Although Warren Buffett may have been lucky in certain investments, no one can deny that his long-term track record is due to being a skilful investor.

Next, focus on the process. Analysing an investment manager’s process is a better way to judge the strategy. One way to see if the manager’s investing insights were correct is to compare his original investment thesis with the eventual outcome of the company. If they matched up, then, the manager may be highly skilled in predicting possibilities and outcomes.

Third, find a larger data set. If your investment strategy is based largely on investing in just a few names, it is difficult to distinguish luck and skill simply because you have only invested in such a few stocks. The sample is too small. But if you build a diversified portfolio and were right on a wide range of different investments, then skill was more likely involved.

Mauboussin wrote: “One of the main reasons we are poor at untangling skill and luck is that we have a natural tendency to assume that success and failure are caused by skill on the one hand and a lack of skill on the other. But in activities where luck plays a role, such thinking is deeply misguided and leads to faulty conclusions.”

Chia concludes that it is important that we understand some of these psychological biases and gravitate toward concrete processes that help us differentiate between luck and skill. That’s the key to understanding our own skills and limitations and forming the right conclusions about our investing ability.

Learn to love momentum

Joachim Clement writes on his blog that the global bull market in equities is seemingly never going to end and investors wonder about what they should do who have missed the boat and only partially invested in the current bull market.

The usual fear is that if they invest now, they might be investing at the top of the market. Another argument is that every asset class seems overvalued. Given extremely low-interest rates, bonds don’t seem a viable option, stocks aren’t cheap either and many alternative asset classes like infrastructure or REITs have become expensive as well. There comes a point when avoiding an asset class on valuation grounds or for fear of an imminent bear market becomes counterproductive. By standing on the sidelines for too long the opportunity costs in terms of foregone returns can become so big that it may take you years and even decades to make up for them.

Value investors and long-term investors, in general, tend to look down on traders, but there are a few things that long-term investors can and should learn from them. First of all, they should learn that time in the market is more important than timing the market. One can only make money if one is invested. But being invested comes with the inevitable risk of drawdowns, which can be short-term in nature like in the US at the end of 2018, or a massive global bear market like in 2008. To deal with these risks of decline in share prices it is important to learn from short-term investors to respect and even love momentum. If price momentum goes against your position for too long, you should sell the position and buy it back at a later point in time when price momentum is more favourable again.

The maximum declines between 1998 and 2019 have also been massively reduced, showing that these momentum-driven strategies can help you avoid severe losses. If you are worried today about high valuations or the possible end of the current bull market, then the most important thing for you is to get into the market with a sensible plan to get out when momentum turns. But this is fine-tuning. The most important thing for investors today is not to be afraid of the bull market.

Gold should be viewed as an investment – S Subramaniam, Titan

Update on the Indian Equity Market:

On Thursday, the Monetary Policy Committee (MPC) of RBI decided to keep the policy repo rate unchanged and persevere with the accommodative stance as long as necessary to revive growth, while ensuring that inflation remains within the target.

The broad market index, Nifty50 ended the day marginally high. PSU Bank (+2.6%), Media (+1.6%) and Pharma (+1.3%) were the top gainers while FMCG (-0.6%), IT (-0.4%) and Realty (-0.3%) were the sectoral losers for the day. Amongst the stocks, Eicher Motors (5.4%), IndusInd Bank (+4.6%) and Zee Entertainment Enterprises (+3.9%) were the biggest gainers. Tata Motors (-2.9%), Cipla (-2%) and Titan (-1.6%) ended the day in the red.

Gold should be viewed as an investment – S Subramaniam, Titan

Excerpts of an interview with S Subramaniam, CFO, Titan. The interview was published in Livemint on February 6, 2020:

  • Titan recently released the 3QFY20 result. The numbers were largely in line with the street estimates and margins were better than expected.
  • Although the company is definitely gaining market share, it has been a bumpy ride. The months of October and November were pretty good but December was tough, so the market is a little shaky.
  • The CFO is hopeful of doing well in the coming quarter as well, the initial guidance of 11-13 percent growth in the jewelry segment has been maintained.
  • Growth in the jewelry business was guided at 2.5x by 2023, which may be at risk, considering that kind of growth is not happening. People looking at gold as an investment in addition to it being a jewelry item would help achieve that kind of growth.
  • The industry has been in pretty bad shape for a variety of reasons. The month of December saw a surge in the gold prices, which did not help. A lot of the jewelers are undergoing financial crises with a pretty bad liquidity situation. Those with adequate funds can possibly do better. Else this pain will continue industry-wide for some more time.
  • Moving to other business segments, the watch segment, World of Titan has witnessed 11 percent growth in the quarter. Although the growth was phenomenal, opportunity was missed on the trade channel because of stocking and in the e-commerce channel. 10 percent of the revenues come from the e-commerce segment which has been slowing down.
  • Margins would be an area of concern for the watch segment. It is expected to perform better including in the next quarter (Q4).
  • The expectation is that margin-wise, the company performance would be better in FY20 than FY19.
  • Growth has been challenging for the eyewear segment. The profitability challenges continue, which need to be addressed.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Titan was ₹ 1259/- as on 6-February 2020. It traded at 69.6x/ 54.5x/ 45.6x the consensus earnings estimate of ₹ 18.1/ 23.1/ 27.6 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price of ₹ 1204 /- implies a PE multiple of 44x on FY22E EPS of ₹ 27.6 /-