Presently, I think that the opportunities in the market are very thin. Valuations have run ahead of the fundamentals of the companies - even bad businesses, with troublesome prospects are being richly valued. On the other hand, its good selling opportunity, as its sellers market now. Its quite evident from the number of IPOs and FPOs lined up (why else would promotor sell his equity, unless he gets very lucrative price?!). Overall, its good for the economy, as Indian Business owners, esp Govt companies, get good valuations and can expand the operations; courtesy, foreign liquidity. And good for investors like us, as we have more businesses to look into as buyers. We selectively take it as an opportunity to exchange our equity with the highest bidders. Thanks to buyers!
Over next few months, either the valuations will have to catch up over time, or asset prices will have to correct. With even an iota of bad news, there is a fair probability that asset prices will correct. And we are keeping our gun-powder dry!
Q: So what happens if Equity markets remain here? What do we do?
Well, Nothing for a while! We get into safest & best thing available - FDs. With that (1) we are still preventing inflation eating our money (2) we are safe (3) we have cash available to us when ever opportunities emerge!
The economics of this deal are wonderful. Consider the mathematical analysis of remaining patient. Observe first row - Assume that one lets the money remain in bank for 4 period earning 7%pa, and then gets (JFM09) kind of market in period5, making 100% return. Total return over 5 periods comes to be 21% - good! Consider second row. Money is in bank for 3 periods earning 7%, followed by a bumper year of 100% - net return - 25%! The economics of the deal gets better and better as possibility of absolute great returns over shorter period increases. Wonders of Patience!!
A friend shared this story about Charlie Munger's company lately - and how it generated great retuns lately. See Fool.com here
A company that Munger controls did just that. The Daily Journal saved its money over many years building up a cash reserve of over $20 Million. All of the money was invested in Treasuries and there was no hint that there was a desire to purchase stock. In the March quarter of this year, $15.5 Million was moved into a stock or several stocks. The value of that stock (or stocks) was $24 Million at the end of March, $41 Million at the end of June and $48 Million at the end of September.
Bottomline is BE SAFE!! PRESERVE YOUR CAPITAL!!
Pabrai mentioned the concept of "motta hisabb" (back of envelop mathematics)... similarly i think we should adopt only broader sense of markets and not do too much of mental jugglery about it. We waste our mental power/lives on issues which don't matter (where is economy heading in 6 months/where is interest heading in a quarter/how will commodities do next year, etc).
Master Oorgway says that a peach seed sown will grow out to be a peach tree - Buffett says the same when he mentions that you cant produce a baby in a month from nine women! Things will take their own time, but broader direction should be correct. A business, with good economics, with honest management, which is compounding capital at, let say 25%, will be double the size in three years. That's pure mathematics. In between, its all noise.
Looking at the requirements of the population in our country, we think that the direction for the Indian economy will remain upwards over long time - we got to grow a lot to reach to developed countries' level. And so, we always remember the wisdom from Master Oogway...
Message from the Master Oogway
(Taken from conversation between charterers of the movie - KungFu Panda)
Master Shifu: Master, master!
Master Oogway: En?
Master Shifu: I have...a...it's a...it's very bad news!
Master Oogway: A, Shi fu, there is just news, there is no good or bad.
Master Shifu: Master, your vague, your vague was right, Tai Lung is broken at the prison, he is on this way.
Master Oogway: But he is bad news, if you do not believe that the dragon warrior can stop him.
Master Shifu: The panda, Master? but the panda is not the dragon warrior, he wast even meant to be here, he was an accident.
Master Oogway: There are no accidents.
Master Shifu: Yes, I know. you said already, twice!
Master Oogway: Well, that was no accident.
Master Shifu: Thrice!
Master Oogway: My old friend, the panda will never fail his destiny, nor you yours, until you let go afraid to illusion of control.
Master Shifu: Illusion?
Master Oogway: Yes, look at this tree, Shifu, I can not make bloom someone and let's shows me, nor make bear fruit before it's time.
Master Shifu: But there is other thing we can control. I can control when the fruit fall, I can contorl where plant the seed, that is no illusion, Master!
Master Oogway: A, yes, but no matter what you do, that seed will grow a peach tree, you may whish for an apple or an orange, but you will get a peach.
Master Shifu: But peach can not defeat Tai Lung.
Master Oogway: Maybe it can, if you are willing to guide to it, to nurture in it, to believe in it.
Master Shifu: But how, how? I need you help, master?
Master Oogway: No, you just need to believe. promise me, Shi fu, promise me you will believe.
Master Shifu: I...I…I will try.
Master Oogway: En good. My time has come, you must continue your journey without me.
Master Shifu: What...what...what you wait... Master, you cann't leave me!
Master Oogway: You must believe.
Master Shifu: Master...
