Have you made money from investing or trading?

May 4, 2010

In this issue:
» Blackrock says bull market is far from over
» SEBI sets guidelines for rating agencies
» Buffett's concerns on inflation
» 'Dr. Copper' predicts bad times
» ...and more!

--------------------- To All Warren Buffett Fans ---------------------
Have you ever wondered which stocks Warren Buffett would buy if he were investing in India? Well, if you want to know how to build a Buffett like portfolio based on the principles of the second richest man in the world, you do not have to look too far.
Just click here to buy the stocks Warren Buffett would probably have liked to...

We have always been proponents of long term investing as against short term trading. Our rationale is simple. Whatever short term gyrations there are in the stockmarkets, in the long term, stock prices eventually catch up with the earnings potential of the companies. So, we were amused by an article in a leading business daily, wherein a survey conducting by a brokerage house concluded that in the past five years, short-term traders churned returns of around 95%, while long term investors earned returns of around 45%.

And in order to prove that point, the tool used was a supposedly popular technical tool called the 'five day moving average'. Now, we can't help but feel that this seems increasingly a case of vested interest. After all, brokers earn their income depending on the number of times you trade. So it is hardly surprising that they would come out with a survey with results in their favour. Further many questions come to mind. Will all tools of technical analysis come to the same conclusion? Do the costs of transaction justify the returns generated from trading? Is all this effort really worth it?

Long term investing has only one simple approach. To do research on companies, identify those with good managements, strong earnings potential, a solid balance sheet and the right price. And once that initial legwork is done, investors do not need to keep track of the daily movements in the markets but can watch their investments grow over time. Infact, short term traders can be helpful to long term investors. How? By creating opportunities for the latter to pick up good quality stocks at a bargain!

 Chart of the day
In all other economic matters, there is probably not much to differentiate one BRIC nation from the other. But when it comes to foreign reserves, there is only one BRIC country which towers the rest. As today's chart of the day shows, China is way ahead of Russia, India and Brazil when it comes to foreign reserves in its kitty. Not only has the dragon nation grown at a scorching rate in the past led by exports, but the pegging of the Yuan to the US dollar has also swelled reserves.

*Foreign reserves at the end of FY10 excluding gold, except in the case of China
Data Source: The Economist

A lot of predictions are being made these days with respect to the way markets will behave from here on. Some views are positive, but most talk about an impending crash. Anyways, if one were to believe the view coming out from the global fund house, Blackrock, the bull market is far from over.

Blackrock believes that in the US, the economy is transitioning from a government-aided recovery to a self-sustaining expansion. It also expects the Fed to begin signaling an increase in interest rates soon. In fact, the fund house is even undeterred by the problems in Greece, which it says should not disrupt the global recovery. In addition, it also says the markets should continue to rally as cash offers poor returns and valuations on stocks remain attractive.

We have a slightly different opinion on this though. While we would not like to comment on the short term movement of the markets, we do not believe that stockmarkets in India are not attractive in general. Though one can still find some valuable long term opportunities at decent prices, the attractiveness has reduced a lot from what we saw till about a few months back.

After ULIPs, SEBI has now set its eyes on the ratings agencies. These agencies have been accused of loose rating policies and conniving with their customers. As a result, most of them have lost credibility in the past 18 months. But the Indian regulator intends to set things right in the Indian context atleast. That is before the poor ratings assume alarming proportions so as to destabilize financial markets here. And thus prevent a subprime-like crisis as was witnessed in the West. With this in mind, SEBI has put in place process guidelines for the rating agencies. This includes not just a formula for calculating default rates. But also makes it compulsory for the agencies to publish historical rating records. The regulator believes that the guidelines will make ratings more transparent. Indian rating agencies like CRISIL and ICRA seem to agree with it. Only time will tell to what extent they safeguard Indian markets from greedy speculators.

Given the unprecedented infusion of liquidity in the financial system, inflation should be on every investor's watch list. It certainly is on Warren Buffett's. He says, "The prospects for significant inflation have increased, not only here but around the world". In our view, India is already facing the challenge of rapid inflation in food prices. But pretty soon, the low inflation and interest rate scenario in the developed world will end too.

Speaking at Berkshire Hathaway shareholder meeting, Buffett cautioned that withdrawing from the financial stimulus will be a difficult task. He also said that the US economy is recovering. But that is more evident in manufacturing than the housing markets. He also had warned that Greece might end up like a movie with a depressing ending. The fact that it cannot print its own currency has made it incapable of resolving its financial problems. In our view, that would put idea of a unified currency for an economic zone under severe doubt.

Copper, unlike gold, is extensively used in industry and manufacturing. No wonder than that its price movements are seen by many as akin to feeling the pulse of economic activity. Stockmarkets the world over have been able to trade in a narrow range for some time now, thus holding onto the gains they managed to make during the recovery. But copper tells a different story. Copper prices in the futures market have been slumping off late. More so due to China's recent moves to temper its economy. Thus speculation is rife that 'Dr. Copper' is predicting bad times to come. A warning sign for stocks indeed.

Noted investor Marc Faber, author of the Gloom, Boom & Doom report, is wary of investing in China. He believes that China's economy will slow and possibly crash within a year. What will fuel it are the declines in stockmarkets and commodity prices which would highlight that the nation's property bubble is set to burst. As reported on Bloomberg, the Shanghai Composite has slumped 12% this year and has been Asia's worst performer.

China is in peril because the economy has been latching on to property development for driving growth. As per reports, as much as 60% of the country's gross domestic product relies on construction. What is more, with policymakers in China trying to arrest the surge in property prices, Faber is of the view that investors would then be goaded to turn to Chinese stockmarkets. This too at a time when stocks in that nation appear fully priced.

Assuming that China does crash, it would be naive to assume that the same would not have an impact on the Indian stockmarkets. Surely, there could be a knee jerk reaction which would then provide investors with a perfect opportunity to pick up some good quality stocks. India, at the end of the day, is not reliant on exports the way China is and the domestic growth story in the former still has a lot of steam left. Thus, a loss in Chinese stockmarkets could very well turn out to be a gain for the bourses in India.

Indian stock market had a volatile trading session today. While the morning session saw the indices trade above the dotted line, in the afternoon session markets were struggling to stay afloat. At the time of writing, the BSE-Sensex was trading lower by about 16 points (0.1%). Asian indices were trading mixed, while the European indices had also opened on a mixed note. While losses were largely seen in metals and FMCG stocks, oil & gas and healthcare stocks found favour.

 Today's investing mantra
"With every new wave of optimism or pessimism, we are ready to abandon history and time-tested principles, but we cling tenaciously and unquestioningly to our prejudices." - Benjamin Graham

Today's Premium Edition.

Recent Articles

All Good Things Come to an End... April 8, 2020
Why your favourite e-letter won't reach you every week day.
A Safe Stock to Lockdown Now April 2, 2020
The market crashc has made strong, established brands attractive. Here's a stock to make the most of this opportunity...
One Stock that is All Charged Up for the Post Coronavirus Rebound April 1, 2020
A stock with strong moat is currently trading near 5-year lows.
Sorry Warren Buffett, I'm Following This Man Instead of You in 2020 March 30, 2020
This man warned of an impending market correction while everyone else was celebrating the renewed optimism in early 2020...

Equitymaster requests your view! Post a comment on "Have you made money from investing or trading?". Click here!

7 Responses to "Have you made money from investing or trading?"


May 4, 2010

If you are active in field, trading provide more money. but loose the patients.


Anupam Garg

May 4, 2010

& tht is why i just love your newsletters...a tight slap on the brokers and short term speculators...interesting mantra 2


Harish chandra gupta

May 4, 2010

Purchase at lower rates on dips or correction in those stocks will dilute the risk
H C gupta



May 4, 2010

your 5 minute wrapups are pretty informative.. particularly today's "Have you made money from investing or trading?"
this was very helpful after reading suh articles in news papers.
I also share the same view & reading this in your wrapup today made my persspective more stronger.


R. Balakrishnan

May 4, 2010

Best way to dilute the holding taken on high rate is book loss and switch to a high growing stock provided the holding stock is slow one in growth. But needs guts to do that.
I made money mainly by passive investing and not at all by trading and not attempted also.



May 4, 2010

dear sir , i am daily intrday as well as positional trader since 1 year have crossed 5cr turn over i lost nothing gained nothing please guide me in this regard

thanking you



May 4, 2010

what is the best way yo dilute our holding taken on high

Equitymaster requests your view! Post a comment on "Have you made money from investing or trading?". Click here!