H1 CY19 - The bars are empty!

Credits - https://travel.jumia.com/

Recently, Rakesh Jhunjhunwala succinctly described the mood of the current economy when he said - Nifty is touching all time high, but all the pubs are empty! 

Mass plant shutdowns (in auto sector), auto dealers shutting down their shops, FMCG slowdown, pharma facing adulteration issues, NBFCs rockstars asking for "first 10% loss should be borne by the Govt" - its gloomy. The govt, seems to be interested in raising taxes upwards. The industry concalls do not give any idea why this degrowth is happening or when the things will rebound. 

In this gloom and doom, I think food sector is the only oasis. Q4Fy19 results also points out that only the food segments did well - when even FMCG was getting butchered. 

Overall, blood-on-streets season continues, THINK and do whatever best u can!

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Last year, around september, when NBFC crises began to emerge, many people had multiple issues with MFI/SFBs. Common narrative was - ".. but what if xyz happens". Thats the nature of narrative. Most of narrators dont have skin in the game - and wont ever have, as they are not trained for decision making in stressful times. And its not their own money - so, safety aka no-volatility-of-stock-prices is desired.  During such times, the best thing for a person knowledgeable about a industry, is to buy more and more. Same happened in Sugar sector last year, when there was zero visibility - and now suddenly the story seems to have become tad optimistic.

As a rough guide, 

• I have learnt that PRIVATE INVESTORS (putting their own money to work AND having no other commercial product to sell to investors) act and think like smart businessmen. 
• They put in their own money behind their opinions. (Just let this thought sink in, as there is no other bigger accolade than this!)
• They are not answerable to anyone, except themselves. This looks mundane, but relieving your brainpower by NOT answering to everyone's common over-heard narratives/emotional swings/greed/fear/drama, is a superpower. In super emotive markets, weeding off emotionally-moody and weak is the best thing to do.  
• They dont worry about price fluctuations - and they think about stocks like businesses to be acquired, to be run, over decades. This viewpoint itself makes buying during volatility easier. 
• Willingness to put in one's money, leads to through research, which leads to conviction, concentration and patience
• They are temperamentally most stable people - not looking for small adventures/engagements/entertainment or small wins to feel good. This also reflects in the fact that they can bet big when the opportunity arises, as they can buy for years, without worrying for a quick exit.  
• They are conservative - after all its their own money. Longevity and survival is important than winning annual marketing games. 
• There is lack of involvement into other entertaining options like futures/options or smart quick money making deals. 
• They understand power of focus. They understand not getting involved into other commercial businesses.

I have learnt that being along with 2-3 self-made private investors, is better than following 10k people. 
Find them. Copy them. 

-- End --

H2 CY18 - Planted

The Game

You can't judge another investor's actions without understanding the game they're playing. There's so much underneath it... position sizing, capital flows, portfolio construction, timeframe, objectives, risk management, composition, etc... investing/trading is idiosyncratic.- @EdBorgato

True. 

We are not in the game of minimizing volatility as many institutions are. Institutions, running billions of retail money, want to retain that capital. So their objective is minimize volatility and give comfort of not-showing-any-contraction to the retail investors guys. Finally, retail gets exactly what they want.

We want to maximize returns, using volatility, still being in cheapest unloved, under researched areas of markets.  Chaos is welcome part of process, not some unexpected hindrance. Volatility is like speed breakers on the way... a car slowing at speed breakers doesn't mean the car is faulty. Best advantage to us is that 99% people view volatility and uncertainty as indigestible, and hence get off the car at wrong time.

Know the game you want to play. 

Planted

Our companies r doing well. Growing by 20-25%. The growth may not be visible, but it is working, under the hood.

Investing isn’t about PE ratios, ROEs, balance sheet analysis, company analysis … its being able to sit and take decision when everyone is losing their heads and blabbering same narrative, when the brain is freezing, prices are contracting, there is no visibility or certainity, and hopelessness all around and no new information is in sight – and still remain focused on workings of the underlying businesses in such turmoils. Our everyday OPERATIONAL HUSTLE is TO TIRE OUT THE MARKETS, not get tired out by the markets. Its not feeling down or wreaked or deprived due to falling prices. This is real face of investing.  

Some random general observations

• Many swashbucklers of yesteryear have fallen due to governance problems - punj, ranbaxy, sun, thapars, gaurs. Major and interesting shifts are happening in Indian corporates. Shows that only conservative, non adventurous and debt free may survive in long run. Check, Billions to Bust - link.
• Many beloved stocks are down to 2014/15 or earlier levels - Yes! No return for last 4+ years in many beloved high quality names - Tata motors, kajaria, kaya, greenply, greenlam, NBCC, vst tiller, symphony, db corp, HT, jagaran, navneet, bajaj auto, eicher, MPS, poly medi, eveready, poddar housing, bse, lupin, amara raja, gateway, emami, mayur uniquoters, sun pharma, cera, hero motors, crisil, acceleya, eclerx, dhanuka, lupin, cipla, Dr Reddy, ajanta .. list is endless. All of them were beloved stocks at some point of time. Many of them had poor capital allocation or having no growth (and hence management not going for capex) leading to PE contraction, or just repaying debt or dividends. 
• Observing that "Start-ups" dont make money or are not in the business of ever making money*. Its just playing musical chair business. 
• Finding that even listed companies from new economy, optically showing high RoE, but are in fact, unable to bear cost of equity capital of the investors (unless investors go ahead and play musical chairs). Ex- check the capital invested in Matrimony.com , and see RoE generated on real cost of equity invested. As going concern, RoEs are not lucrative. Its tough to start a business from scratch, (tougher to bootstrap), and generate honourable RoE. 

Recommended

Read - Masterclass with Super investors

Watch - Investing is hard

--The end.

*Definition of making money - In one conversation, a friend hitting a start-up  musical chair jackpot, thought he "made some money" - without realizing that his process is non-repeatable, and he is developing no repeatable skills, and he cant do same work in next 50 years of his life! Moreover, easy money killed the purpose of life!

Making money = attaining and growing skill time after time + repeatable process + having some purpose + having fun doing that in next 50-60 years! Anything, not adhering to this, is just not making money!