Friday, February 10, 2012

That left out feeling!

A warm hello to all! I think the title of this post summarises the state of the majority of investors (not all!). Its the feeling which the only married guy in a group gets, when all his bachelor buddies go drinking!
The world was so beautifully going to the dogs. The PIGS were being cute and wonderful, China bubble was supposed to pop anytime, US was supposed to have never recovered, the Iran guys were upto something which would take oil prices through the roof, our Government policy and decision making was in shambles, inflation was still not comfortably low, interest rates looked like they would stay high for some more time, our deficit was ballooning out of control, with growth being hit simultaneously and most importantly, everyone around was also not investing. We all were waiting for the inevitable fall so that we could deploy the safely kept cash and dance around merrily. Hell, that didn't happen! Instead, the market (index) rallied, with a huge number of well known small and midcaps going up 50-100% within a couple of months. Investors were left just sitting on their behinds! So what went wrong (or should I say, what went right, for everything to rally?) What to do now? Lets try and answer these questions..

What caused this rally?
Answer: Really doesn't matter! The rally has happened, its done! No point in brooding over past events, which will add zero value to you. No point in looking at the stock prices and saying this available at half the price a few weeks ago etc etc. Lets be in the present and not dwell upon the past.

What to do now?
Well, everyone has different approaches to doing things. So i will talk a bit about what not to do too, coz that is most important..
1. Absolutely avoid panic buying. There is no point in buying just for the heck of it. This is the time when one will become most susceptible to 'tips' because the mind will be looking for support from someone to help you earn some money and not be left behind. When everything around is rallying and someone tells you that xyz stock is the next in line, it is but natural to get tempted. But, don't!! Control temptation, keep logic and common sense alive.
2. Don't instinctively buy stocks that haven't gone up in this rally. Typically, our mind will search out stocks whose price hasn't gone up, thinking that they are next in line to go up. Well, there could be very good reasons why the price hasn't moved and these reasons could very well take the price even lower! So, no buying without proper investigation.
3. Don't justify your failure to deploy cash. Do not say to yourself that I knew this rally was going to come but this is just a one-off. It will fall soon and then I will buy! Admit your mistake. Its the first step towards not making it again!
4. Don't be afraid to sell. If you think that the price of some stocks in your portfolio has undeservedly gone up, do sell them. Don't wait for a higher and higher price to sell, like most people recently waited for lower and lower price to buy!
5. This is a good time to get the crap out of your portfolio. Well, any time is a good time to do that actually! But now, if the crap has moved up, it will be less heart-wrenching to let it go! Use the opportunity! Also, remove small and marginal positions in your portfolio, which you don't intend to add to. Make the portfolio leaner.
6. Opportunities still exist. They always do, wherever the index may be. But now, it will require much hard work to find them out. So, lets work harder. Of course, now is the time to be ultra careful, not because the market has rallied, but because our mind will be eager to buy something and not be left behind. Lets watch ourselves and not get sucked in.

What should we learn from this?
This is most important. We learn from history, that we don't learn from history. Let history not repeat itself! Let us all learn that timing the market is impossible!

So wasup with me?
I am sooo very tempted to look smart and say that I deployed all my cash (which was a rather large %). Well, I couldn't. I managed to build some positions in a couple of special situations and deploy some cash in few stocks I liked, but full cash could not be deployed. Though the rally did not surprise me, to be honest, the speed of it did. Typically, I tend to take a step back when prices of my stocks start shooting suddenly (uncorrected behavioural flaw!), hence, I could not complete my full buying in a majority of my intended purchases. I am so very left out! And I am quite ok with it, as of now! :-) I am continuing to look at some stocks to see if there is something to buy out there. I am sure there is, it just needs to be found out. Guess we will have to work harder and smarter now! Equally important is whether any of my holdings need to be sold. But I am not still finding any compulsive 'sells' yet.

So all in all, if you could not 'participate in the rally', don't fret. Just keep a calm and cool mind and control the very natural urge to buy something, anything, just for the heck of it! Buying/selling should not be dictated by the market direction. Buy only if makes sense and if it does make sense, buy without fear! If you just cannot control the urge to buy something merely for the heck of it, do go out and buy a few good books! They will always be a great investment! :-)
Let it all be 'routine as usual'.

Cheers and happy investing...

24 comments:

Raja said...

Loved the concluding line. "If you just cannot control the urge to buy something merely for the heck of it, do go out and buy a few good books! They will always be a great investment! :-)"

Just did that.

Neeraj Marathe said...

Lol..yes Raja, one can never go wrong with that!
cheers!
Neeraj

ashok manek said...

very usefull Article...

sameer said...

One way to not get surprised is to expect surprises especially from market

Bhavesh Kakka said...

Surely feeling made a mistake by trying to catch the bottom, even on stocks which looked value buy thinking they are in downtrend lets wait....And now the value buys no more looks interesting buys.
Worst for me this rally has not helped any of the dead stocks in folio to rise...:) May be a confirmation that I should sell them.
You may not have timed the market but surely have timed the post. Perfect timing!!

Venkatesh said...

U have said correctly the mindset of the small investors. First they fear the market will fall and when the market runs they will feel like this and buy stocks and lose money. Can you disclose some of the stocks??? One i think is Nesco!!!!

JM said...

Though the rally did not surprise me, to be honest, the speed of it did.


Wow what a sentence. So true to many.

Neeraj Marathe said...

Hi Sameer,
'expect surprises' sounds like quite an oxymoron..if its expected, it wont be a surprise! :-)

Thnx Bhavesh,
Ya, it happens to all of us doesnt it? and we make a pledge that next time, we will not let it happen! :-)

Hi Venkatesh,
I could not buy nesco..it did not come to my price range and moved up just too fast :-( I got into Esab as the price had collapsed and open offer at 510+ was a certainty..i plan to write a bit about few more stocks on the blog..

Hi JM,
Ya, very true to all of us!

Cheers!
Neeraj

......... said...

Hi Neeraj,

I think there is never a time when you should be 100% in equities... a cheap market can become cheaper & we can loose the opportunity to buy at cheaper rates.

What do you think on this?

Neeraj Marathe said...

Yes, that is what Graham tells us to do..never 100% in equities..for me, if i get enough opportunities, i would not mind going 100% in equities. (for me, that has happened only once till now, over the past 10ish years)..
cheers!
Neeraj

Rohit Chauhan said...

Hi neeraj
I like your point 5 :) ...my flush is working overtime these days in washing out the crap :)

rgds
rohit

sagar said...

Hi Neeraj

i've Esab india shares but do not plan to participate in open offer & plan to hold long term ..what are the risks ? is there a risk of delisting in future ?

Neeraj Marathe said...

Haha..ya makes sense Rohit,
Cheers!
Neeraj

Neeraj Marathe said...

Hello Sagar,
Delisting is a very distant event and right now, there is absolutely nothing which says that they could delist. Lets see how much they get in the open offer. Plus, the new takeover code makes delisting a bit complicated in esab's case.
Cheers!
Neeraj

Tarun Talwar said...

Hi Neeraj,

The rally was indeed surprising. Fortunately, I picked up some Nesco, which is doing well today. Another stock which has not yet risen but will do so in due time is Shriram transport.I am also keeping my eyes open for some stocks in basic industries, except steel.

Tarun

Neeraj Marathe said...

O congrats on Nesco Tarun. It really did move well. 50% up almost.
Cheers!
Neeraj

Raja said...

I think i overlooked the point 5. But Rohit's comment bought it into my notice. I too have some crap to flush and will get going now :) Thanks Neeraj. Now your post is actionable one for me :).

Regards
Raja

Neeraj Marathe said...

Hi Raja,
Well, i hope that if the crap moves up after u sell, it wont give rise to a different kind of left out feeling!
Cheers!
Neeraj

Raja said...

That's ok Neeraj. Even though am relatively new to the field, i've learnt from seniors that it's part of the game.

Neeraj Marathe said...

O absolutely..i was jus kiddin..plz dont mind
cheers!
Neeraj

Manish (KulMan) said...

Good write up, Neeraj.

I got off Disa bus to Bengalure in Kolhapur!

Now i'm trying not to come in the way of any bus driven by drivers like His Highness Santosh Mane.

Neeraj Marathe said...

Haha!
Well, Disa hit 2350 today! and i am wondering why, although i am still in the bus!!! :-)
cheers!
Neeraj

Anonymous said...

Hi Neeraj
How do you analyze the company's numbers when it has operating subsidiaries (say in different locations) doing the same business as the holding company? Here, holding company (the parent) is not a shell company but a major operating business. When you look at earnings, ROE, ROC,free cashflows, etc. do you use standalone financial statements of the parent company alone OR do you use the consolidated financial statements of the parent plus its operating subsidiaries?

Neeraj Marathe said...

Hi Anon,
If there are subsidiaries, i always prefer to look at consol numbers..
cheers!
Neeraj