"When things begin to go bad, the perception of people makes it
worse."
—James Mirrlees (Scottish, 1936-)
Word for the day
Eggbeater (n)
A helicopter (slang)
Malice towards none
India beats France to take
6th spot on economic ladder.
Can Croatia also beat them
to take their first FIFA cup?
First random thought this morning
The government has accepted net neutrality. It has also virtually
accepted decriminalization of Section 377 of IPC. It is on the verge of
bringing legislation to make Triple Talaq illegal. It is reportedly considering
moving Supreme Court for banning the regressive practice of Nikah Halala.
Though it has so far dithered on the issues like banning marital rape, but
there are some voices of dissent to this view within BJP.
Notwithstanding the opinions freely expressed by various
individuals within BJP and government, the legislative business so far has not
indicated any regressive or bigoted stance of the government.
Challenges investors face this morning
Defying the recent global trend, the benchmark equity indices in
India have risen close to their all time high levels recorded in late January
2018. The broader markets though have not kept pace with the benchmark indices
and have underperformed by 12-15%.
If we consider YTD performance of markets, my strategy of focusing
on large cap strong balance sheets, discretionary consumption, IT and Pharma
and underweight financials & consumer staples has mostly worked well.
Considering almost NIL return in benchmark indices, my 25-30%
tactical cash position (that has returned ~3% absolute YTD) has also worked
well fro me. (See
here)
In view of the benchmark indices trying to get past their previous
all time highs and breaking into new territory, I have got recently lot of
queries from readers. Most of the readers want to know if I am considering any
change in my investment strategy!
At the outset I would like to inform that I am seriously concerned
about the massive rally in so called "quality" stocks that has made
their valuations beyond my reasoning capabilities.
I can find no reason to support sustainability of their current
price levels. Nonetheless, the market is indicating that we may see the current
trend continue to extend further.
This puts me in the most challenging phase of investing, where—
(a) You are happy for your
strategy is working well;
(b) You have almost no
conviction in sustainability of returns in your investment portfolio;
(c) You have even less
conviction in the stocks you are not holding;
(d) Alternatives to equity
look even less attractive;
(e) Optically market is
giving illusion of "all is well"; and
(f) Technical charts are
telling you to buy crap.
The options before me this morning therefore are—
(i) To stay tightly
wrapped in my cocoon and do nothing;
(ii) To play contrarian,
sell quality at crazy valuations and look for bargains in lower rungs, fully
aware that prices may correct further and perhaps dramatically;
(iii) Raise cash level
beyond 30%; and/or
(iv) Go with the emerging
consensus and rotate the portfolio within quality to overweight underperforming
pharma and commodities.
I shall share my thoughts on this with the readers next week.
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