Benefits of Inactivity.

Friends,

It’s been a long time since I wrote my last blog.

I wrote my last blog in January 2012 (almost a year ago). I wish I could be so passive and inactive in my investing activities.

Most of the gains in stock markets are made on in-activity rather than activity. One or two weeks of investing is enough in a year. The market usually goes through various types of moods and expectations. It swings wildly in both positive and negative territories. If you analyze the mood of the markets over the years, you would find there are several kinds of markets.

In India I have been investing since 2008. What a market that was!! It scared the hell out of me. For over 8 months each day, believe me – EACH DAY the markets would fall 0.1 - 1%. I watched the stocks beaten and butchered to hell. Stocks went down 5-10 times in that period. I bet this type of market comes once in two decades. Then came the bull run of 2010. Within a month, the indices doubled. Stocks moved up 5-7 times in a year – a feat which they generally do in a decade.

Even after those wild swings, the markets in India have gone nowhere in last 5 years. Even in the bull market of 2010, you could find opportunities to invest. You will always find something to invest given your capital is not very huge.

Last year when I wrote my last blog, I was witnessing panic in Dec-Jan of 2011. And then after a month, stocks rallied very sharply. In my four years of investing I have found out that each year the market as a whole presents at least 1 opportunity to buy. Even in prolonged bull markets – the markets could correct 25% and then again rebound.

There could be years of stagnating markets. But this is all macro. What about the micro?

Figure this – In the last 5 years of stagnation these are some of the returns on individual stocks:

                                                                               

	1st Nov 2007	1st Nov 2012	Return
NIFTY	19136	18487	-ve
Kaveri Seeds Limited	218	1100	~5 times
Amar-Raja Batteries	161	450 (split adjusted)	~3 times
Lupin	600	2845 (split adjusted)	~4.5 times
Titan Industries	1759	5220 (split adjusted)	~3 times
Nestle	1580	4676	~3 times
Asian Paints	1074	3869	~3.5 times

As you can see above, the general market is no correlation to the returns given by stocks.

From 1965 to 1981, it was 17 long years when the Dow closed just 1 point higher in 1981 than it was in 1965. Yet Buffet achieved 30% returns compounded every year. All through these years the US GDP went inching up year after year yet the markets went nowhere. And we all know what happened after that. A two decade bull run in US equities.

Buffet once said – Irrational things can go on for a long time.

Its true for both bull and bear markets. You cannot simply tell when a bull market can come to end and till when bear markets will last. It is therefore futile to predict these and have reasonable expectations from the market. A true long term investor performs well in bear markets rather than bull markets. In 2003-2008 the bull markets lasted 5 long years. No-one could predict when it would end. So this exuberance could continue on both sides. What is required is an objective approach and low expectations to be happy after once gets his rewards.

Now coming back to my previous point – “One or two weeks of investing is enough in a year”. – Barring 2008-2009 which was an aberration, I have witnessed this phenomenon every year.

2008 – Sep-Dec

2009 - March

2011 – Dec - Jan

2012 – June-July

The above were times when markets threw mouth watering opportunities to us. Not to forget the special situations when a stock could easily correct 30-40% due to bad quarterly results.

Out of the above windows of investment opportunities, there were 2-3 weeks of absolute panic selling. That in my opinion is the best time to invest.

If markets themselves present delicious offers, then its simply foolish to deploy the cash after every salary gets credited or when you have some ample money.

When asked buffet among his favorite quotes, he said – “Wait for the Fat pitch”. I feel this is one of the most important characteristics a long term investor should have – The ability to hold cash and wait for right opportunity. I have started to understand this very important characteristic after four long years. Although still I find many opportunities once every quarter, over next few years I will greatly lay stress on these points:

·         Not to invest more than 3-4 stocks in a year in special situations.

·         Wait for right opportunity to bet BIG once or twice in a year.

Someone wrote in Facebook today - An investor should worry about ones own mis-investments rather than worrying about the markets, marco and micro. What a piece of advice !!

There is nothing new that I am saying. All this has been several times ago. The more markets behave differently, the more they are the same!! Because its in the nature of markets to behave irrationally over shorter term.

Now coming back to stocks. 2012 is over. Lets concentrate on 2013. Lets hope markets remain low and we get chance to buy excellent businesses.

In the next calendar year I will try to cover few of these 12 stocks listed below.

Most of these stocks have been discussed earlier in other blogs. But who said that you always need some different stock to make money? In fact the best known stocks which have made enormous money are already known still people don’t want to invest in them (including me!)

Kaveri Seeds

Arshiya International

Tilak Nagar Industries

VA Tech Wabag

Prime Focus

EPC Irrigation

Hindustan Tin Works

Sanghvi Movers

VST Tillers

Suprajit Engineering

Ganesh Ecosphere

Hyderabad Industries

Lets hope that I will remain more active on this blog than I was in 2012 and that I will remain more in-active in my investing as I was on this blog.

Cheers !!

CVB