Have you ever been to the vegetable market after 9:30 p.m.? The market at 9:30 p.m. is very different from the market at 5:30 p.m.
At 5:30 p.m., the market is less crowded. The produce being sold is good and fresh. The customer has a larger variety to choose from. The customer is also at liberty to choose the best from the available stock. The vendors are patient, polite, and willing to negotiate the prices.
As the day progresses, the crowd increases. The best of the stuff is already sold. Prices begin to come down slowly. The vendors now become a little impatient and less polite and mostly in "take it or leave it" mode.
By 9:30 p.m., most of the stuff is already sold, and poor-quality residue is left. The vendors are in a hurry to wind up the shops and go back home. The prices are slashed. There is a big discount on buying large quantities. Vendors are aggressive and very persuasive.
Customers now are mostly bargain hunters, usually the small & mid-sized restaurants, caterers, and food stall owners. They buy the residue at a bargain price, cook it using enticing spices and oils, and serve it to the people who prefer to eat out instead of cooking themselves, charging much higher prices.
The cycle is repeated every day, without fail, without much change. Everyone complains, but no one tries to break the cycle. Implying that all participants are mostly satisfied.
A very similar cycle is repeated in the stock markets.
In the early cycle, good companies are under-owned and available at reasonable prices. The market is less volatile. No one is in a hurry. Smart investors go out shopping and accumulate all the good stuff.
Mid-cycle, with all top-class stuff already cornered by smart investors, traders and investors compete with each other to buy the average stuff at non-negotiable prices. Tempers and volatility run high.
End cycle, the smartest operators go for bargain hunting. Strike deals with the vendors (mostly promoters and large owners) to buy the sub-standard stuff at bargain prices. Build a mouth-watering spicy story around it. Package it in an attractive color and sell it to the latecomers and lethargic at fancy prices.
The cycle is repeated every time, without fail, without much change. Everyone complains, but no one tries to break the cycle. Implying that all participants are mostly satisfied.
If my message box is reflecting the market trend correctly, we are in the end cycle phase of the current market cycle. I get very persuasively written research reports and messages projecting great returns from stocks that no one would have touched early cycle or mid-cycle.
The stories are so persuasive and the packaging so attractive that I am tempted to feel "it's different this time." But in my heart, I know for sure, it is not!
If you are tempted to say that I have been saying this crap for almost two months now, I agree unashamedly with no regrets whatsoever.
Have a look at the top 50 price gainers at BSE in the past six months. The earnings of most of these companies are not congruent with the rise in market price. In some cases, it has been even lower. The stories are truly enticing and even inspiring in some cases.
Out of 8500 odd BSE listed companies for which data is available, over 5000 reported negative or marginally positive EBIDTA in the last results. More than 1000 companies trade at EV/EBIDTA higher than 25. In the early cycle more companies trade at lower PE ratios.
Make your own assessment of what I am trying to say.
