Sometimes, it so happens that while taking an investment decision, one's thought process becomes more important than fundamental analysis, ratio analysis, etc etc.. (Most of the times, its because one is unable/incapable to do fundamental analysis, etc!!!)
For example, consider me and the sugar sector!! We just don't get along! I hate the sugar sector from the bottom of my bottom! I just cannot make any estimation or take a view on the future of the sector. Here's why..
- The price of raw material (sugarcane) is controlled by the Government.
- The price of the finished product (some of it) is controlled by the Government.
- Imports/exports can also be controlled by the Government.
- Government people aren't very rational lotsa times. One cannot even guess what they can do!!
- Soooo, what can happen to the sugar sector in between all this mess is anybody's guess.
However, it so happens that if one plays a commodity cycle (like sugar) right, the returns can be HUGE. Soooo now, we have a situation, where there could be an attractive opportunity, but we have absolutely no idea how to analyse it fundamentally, etc.
So here is where something called as mind-maps come in. When you want to arrive at a decision using a very structured thought process, mind-maps come in very handy. They are a flowchart kinda thing, where a logical flow of thoughts helps you arrive at a decision.
So I scribbled up a mind-map relating to something in the sugar sector, coz I had nothing better to do at the time! :-D Here it is...
|Please click to enlarge|
Some more points regarding the same:
- One can totally ignore the sector as such.. No harm in doing that at all. There is no compulsion. Huge number of other (but not comparable) opportunities are available out there.
- If one opts to go this way, one would be holding on to the stock for 2-3 years without having the faintest idea why!!! So it can get very very uncomfortable.
- If one wants to take an exposure to the sector, one may also want to do a basket approach. Buy Balrampur, buy Renuka and also buy the worst company in the sector!
- Extended sugar cycle depression: You could have a situation where you are stuck in the position for a long looooong time without any decent returns.
- Capital allocation: How much of your portfolio can one allocate to such a kind of position? Basically, you are taking a position without much 'actual' thought, right?
- Probable opportunity losses: Once capital gets allocated there, one may have to suffer the heartburn of suffering opportunity losses, at least for some time.
- Irrational decision making down the line: If one cannot control emotions here, there can be some irrational decision making one can get into. It wont be comfortable holding positions like this...
- When to sell? While taking the position, one has no idea about the 'value' of the company. So one will have no idea at what price it becomes overvalued, at what price to sell, etc. So it could cause real confusion later..
Cheers and happy investing!!