इशरत-ए-क़तरा है दरिया में फ़ना हो जाना
दर्द का हद से गुज़रना है दवा हो जाना
— मिर्ज़ा ग़ालिब
(Aspiration of
every drop of water is to get extinguished by immersing itself into the ocean. For
a person who is hurt in love, extreme pain is the only relief.)
I interacted with a small but reasonably
representative sample of investors in the past few days. The interactions were
in person meetings, discussions over telephone and WhatsApp chats. We discussed
a wide range of topics that are current in investors’ memory. The idea was to
understand their current outlook on markets. From my discussions I have
concluded that currently a majority of investors are ambivalent about their
investment outlook and strategy. They are perplexed, greedy, fearful and
relieved all at the same time.
The following are some random thoughts based on
my latest interaction with a sample of investors.
It is customary to read and quote investment
classics during market turbulences. However, in my view these classics are more
relevant in the times that could be explained by rational thinking. For market
situations where the investors’ psyche is overwhelmed by greed, fear, anger,
disillusionment, delusion, etc., philosophy (of life not money) provides better
answers. I find that the present market situation is one of those situations
where investors’ may be better looking for guidance in philosophy books.
In this digital era of human civilization, the
life of common people is significantly influenced by the media, especially
social media. Our brains are increasingly becoming like RAM (Random Access
Memory) of our computers. It is a playground of active dataset, which gets
erased as soon as the new dataset becomes active. It works strictly on GIGO
basis (Garbage in Garbage Out). If the feedback of my sample is any indication,
the activity of investors in the markets is aptly represented by the messages
they send/share on their social media timelines or chat boards.
The activity of a common man on social media is
a good indicator of his current state of mind. I find an unusual rise in funny
memes relating to the markets, portfolios and investors’ misery. Even seasoned
investors and advisors are sharing jokes and memes about the serious drawdown
in their portfolios; as if they are vindicating what legendary Mirza Ghalib
said 200 years ago. Once the drawdown in the investment portfolio goes beyond
the tolerance limit, it becomes a relief.
Many younger investors are perplexed;
especially those who have started investing on their own in the past 2years,
and experiencing their first major market correction. These youngsters who have
been learning investment from the benevolent guides on social media and star
investors frequently seen on electronic media, are already questioning what
they have learned in the past couple of years. For example, consider the
following inquisitions:
·
I was told that the markets are
decoupled from macroeconomics. But now all experts are warning about inflation,
current account deficit, policy rates, USDINR, GDP growth etc.
·
I was told that this decade
belongs to India. The Indian economy is the fastest growing economy and the
pace of growth will accelerate even further. The government of India is doing
all the right things to ensure faster growth in the coming decade. But the
experts who were telling this are worried about the ruling party losing
election in one state and advising caution.
·
I was told that Electric
mobility, ESG standards, clean energy etc. are the power themes that will drive
markets in this decade. However, two weeks of spike in fossil fuel prices has
made these themes redundant, rather than strengthening belief in them.
·
I was told “Zomato, one of the
top 5 unicorns of India, is a platform company which has successfully solved
for convenience by connecting restaurants with customers. By using technology
and a fleet of delivery partners, Zomato has created a capital light
compounding machine which creates an eco-system wherein the best of the
restaurants will make more money (as Zomato brings more customers driven by
quality reviews/ratings) while customers enjoy convenience along-with
right-quality product and delivery partners enjoy part-time income. Platform
companies have ruled wealth creation globally. We believe, Zomato, as a
platform and being category leader, will continue to drive outperformance in the
food services industry in India.” But the stock is down over 25% from my buying
price and now experts are telling me to sell.
A deeper inquiry suggested that most of these
investors were overweight on new economy stocks, which have been the worst
affected in this correction. They are not sure whether they should sell their
current holdings at prices 30-40% lower than the cost of acquisition, or just
stay put.
Many seasoned investors who started the
discussion with the question “what should be done?”, were found swinging
between “greed” and “fear”. From their experience they know that these are
temporary turbulences and eventually markets will be alright. Thus they are
seeking opportunities in this fall. However, the persistently negative news
flow is making them fearful. The fear of losing capital due to further sharp
drawdown is overwhelming. These people are thinking about selling and buying in
the same breath.
Some of the global institutional investors who
were “structurally” bullish on Indian equities are suddenly discovering that
many developed markets may be offering relatively much better valuations than
India. Some domestic fund managers are the most ambivalent at this point in
time. They cannot afford to give a “sell” call publicly but in private
discussions they are scared since the new “skin in the game” rule has put their
own money at stake.
Overall, it appears that the process of bottom forming has already
started. The fear (and indifference) shall soon overwhelm the greed and
capitulation would befall. Till then enjoy the memes:
