Mother f all Bull markets; Bull Shit.
Jul 07, 2014 11:37 am | manishdhawan@live.com
In the last 03 days, I have received 10 subscriptions for my paid premium services. That by the way, if you are wondering is way to fast than normal. There was no special effort from my side, no advertising, nothing new.
What had happened, I wondered. Why has the world developed this sudden liking for my expertize.
For good 30 minutes, I forced myself to believe that finally my day in the sun has arrived. People have graduated from No skin in the game jokers that come on TV to Manish Dhawan, who invests his own money intelligently by playing risk arb, spin-offs, cloning and value investing backed by robust money management. After all, results speak for themselves,
147% returns on Orient Cement, 82% return on Excel Crop, 150% on PTC India Finance, 71% on Dhanuka Agritech, 34% on KKCL, 62% on Automotive Axle, 36% of AIA Eng, 33% on Relaxo, 53% on Symphony, 22% on Thomas cook. Not to count the risk arb opportunities we participated in.
Then, the sanity prevailed and I remembered Warren’s famous quote from his 2000 annual letter.
“Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball”
I immediately realized that this sudden spurt in subscriptions is a NaMO effect. Sure, it would be easy to take credit and say that I am very talented. But I know it and all the intelligent readers know it that no body can be this good. We have all been LUCKY and its the NAMO wave propelling us.
And that prompted me to write this BLOG as an education series. This will be bad for business as I am going to be a spoil sport but my integrity forces me to WARN you. Benefit of skin in the game advisory is that your interests are directly aligned with them.
This is Not a multi-year ‘BULL market’ that everyone is envisaging. Mark my words guys, I am sticking my neck out and saying it aloud. Don’t be fooled by the media, the Big bull, industry experts and sundry. See I don’t predict, and believe no body can, however you can draw a reasonably intelligent hypothesis from the precedent. I have two points to make. One value/Psychology based and other technical.
Bull market thrives on Pessimism. In fact, it is a prerequisite. History has it, there has been not even a single multi year BULL run, which did not start from the clutches of deep despair, pessimism, disgust and hatred for stock markets. I don’t see any hatred, I don’t see any pessimism in any of the numbers discussed above. For the BULLS to buy Stocks, there has to be sellers. No body I know is selling. Every body’s grand ma is Buying. My receiving 10 subscriptions in 03 days is a contra indicator that the retail is joining the party and from experience we know that retail joins when the party is over. They join to wash the dishes. As warren said,
For investors as a whole, returns decrease as motion increases.”
You should buy when you don’t feel like buying. Right now everybody feels jealous of Stock investors and queuing up. Dear Members: Don’t be too scared, party still has some legs and besides you are tailgating, and I will announce when I am leaving the scene.
Market Cycle.
Irrespective whether you follow the technicals or valuations, you have to agree that market just like nature works in cycles. After a day comes the night, after a night comes the day. Similarly market has two cycles expansion and then contraction. An expansion cannot continue forever, it has to contract, take a breath and gather steam for the next leg of expansion. The more decent the contraction, more propelling would be the expansion. Contraction can happen in two ways, either Time or Price. When I look at the monthly chart of Indian SENSEX from the last 20 years, i see that we have already completed our price correction in the year 2008 when everything became dirt cheap. However this up-thirst has no legs in it, it has gone up without a proper contraction. It did not even brush its long term averages. Sudden up-bursts, without preceding contractions have invariably bad endings. The High of this up-run will remain a high for next 2-3 years as I see it. Having said that, instead of predicting future, we will be following the price.
Conclusion.
Sure, we are in a BULL run, make no mistake about it. Last 20 years have seen our market growing exponentially and INDIA growth story is intact. However, Price changes everything. For e.x Infosys is a great company with excellent management, its growing beautifully as well but if you bought it in the year 2000, you are making a profit half than your FD would have paid. And if you bought it at its launch, you must be reading this in your imported SUV.
To quote Warren again,
Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.”
This is a time to be fearful as we are near a top than the bottom.
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