Is it important to know names of stocks you own? - The 5 Minute WrapUp by Equitymaster
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Is it important to know names of stocks you own?

Feb 5, 2015

In this issue:
» LIC bets big on PSUs
» Look who is selling their stock holdings?
» Don't bet on Fed raising the rates soon
» ...and more!

We don't know what other similarities exist between successful long term investors. But as far as we are concerned, all of them share one very important attribute. And it is the fact that they have found out ways of keeping emotions out of the picture as much as possible. Take Benjamin Graham for example. The father of value investing was just adamant that he would not meet company managements. For he was sure that they would colour his thinking and prevent him from making an objective assessment of the company.

His protege Warren Buffett on the other hand has deliberately taken up residence in a rather non-descript place like Omaha shunning the financial capital of New York in the process. Why? Because he didn't want even a remote chance of his views getting influenced by the short-termism that prevails across most of Wall Street.

Then there are some modern investors like Guy Spier who've devised their own ways of dealing with irrationality. Guy, for example, doesn't believe in buying or selling when the market is open and doesn't even like to talk about his current investments.

However, what takes the cake though is this recent interview we read of a fund manager and a pretty successful one mind you. C. Thomas Howard has a 'no-name portfolio strategy' which has given fabulous annual returns of 25% over the past 12 years.

What is unique about his portfolio strategy? Well, as the name suggests, Howard believes in not knowing the names of the stocks he owns! Yes, you read that right. It is a component of his stock picking process that he should not know the names of the stocks in the portfolio because he wants to ruthlessly drive emotions out of his decision process.

Well, we will of course not recommend something this extreme but we hope you got the point we are trying to make. What we've done is just elaborated on that all important statement from Warren Buffett that investing is simple but not easy. Indeed, what he meant was that once we have ordinary intelligence, what we need to be successful in investing is the ability to control the urges that get other people into trouble in investing.

And how do you control your urges? Simple, by being aware that you may get these urges from time to time and therefore, making them a part of your investment process. A lot of the great investors decided to take the emotional bull by horns only after incurring huge losses. You can certainly avoid them in your portfolio if you pay heed to some of your most common emotional biases and then erect barriers around them so as to not let them interfere with your decision making.

What are the steps you take to ruthlessly drive emotions out of your stock picking decisions? Let us know your comments or share your views in the Equitymaster Club.

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 Chart of the day
Look who's betting big on Indian PSUs? It is of course our very own insurance behemoth LIC. As the chart today highlights, LIC's stake in listed PSUs has gone up to 7% in December 2014 as against 4.4% in December 2011. What makes the data even more interesting is the fact that this rise has come against a backdrop of the insurer's stake in private sector companies coming down from 4.6% to 3.9% during the same period. So, does this mean that the insurance giant is more bullish on PSUs now as compared to the private sector counterparts? Or is it that it is holding PSUs for reasons other than better long term returns on stocks? Well, our guess is as good as yours.

LIC bets big on PSUs

While the US Fed has indicated that it may raise rates soon, a sign that the American economy is slowly coming out of the woods, billionaire investors like Warren Buffett, George Soros etc are cashing out on their stock holdings. Buffett, in particular, is drastically reducing his exposure to consumer oriented stocks. In fact, his stake in these stocks has gone down by as much as 21% of late. This is quite surprising as he has been a fan of the consumption theme. It is interesting to note that Buffett is not the only person who is selling stocks currently. Even legendary investor George Soros has been cashing out at present.

So, why are these investors dumping US stocks lock, stock and barrel?

Probably, a market correction is looming large. However, sage investors do not cash out on minor corrections. In fact, they buy more. Thus, it seems that the correction this time could be large. And the extent could be as much as 90% if one Economist by the name of Robert Wiedemer is to be believed. Yes, you read it right, its 90%. Before you dismiss it as being hyperbole let us tell you that Mr Weidemer was not intoxicated when he made this statement!

While the said gentleman may not be a household name he has accurately predicted the collapse in the US housing market in past. If you get a chance, do lay your hands on America's Bubble Economy authored by him to know more. Thus, he is a trusted voice of sorts.

But still 90% seems huge. What could be the reason? Well, he has blamed the US money printing exercise for it. While the US Fed has injected liquidity into the system to try and bolster markets, most of the money is still sitting on the fence for the want of confidence. Once this money makes its way into the markets inflation will surge and interest rates will increase dramatically at that point. This may cause a collapse in real estate market as mortgages are a common practice in the US leading to a massive fall in equity prices.

While no one knows whether Buffett and Soros are cashing out as they too reckon that the judgment day is nearing, it is clear that the American economy is on tenterhooks. And if Wiedemer's prediction comes to be true, its repercussions will be felt across world markets.

Seems like the US Fed won't be able to walk the talk when it comes to raising interest rates, feels legendary investor Warren Buffett. Strengthening US dollar is likely to be a thorn in the flesh of its envisaged hawkish approach.

Basically, revival in the US growth has increased the demand for greenback. As a result, dollar has appreciated. This has made imports cheaper for Americans. And US being an economy that imports most of the stuff it consumes, this should help lower inflation. And if inflation is lower, than the case of raising rates does not make much sense.

Thus, one may wonder why Fed is trying to convey something which appears improbable or rather difficult. Well, going by its past deeds, like for example trying to stimulate the economy through artificial liquidity, this doesn't appear surprising. If the Fed continues to make such flowery statements just to balm investor emotions it may well lose its credibility soon.

The Indian stock markets are trading positive today. At the time of writing the BSE-Sensex was trading up by around 252 points, while the NSE-Nifty was up by 73 points. Gains were largely seen in banking and IT stocks. However, most Asian markets were trading in the red at the time of writing. European stock markets, however, opened in the red today.

Today's investing mantra
"I think it's important to review your past stupidities so you are less likely to repeat them, but I'm not gnashing my teeth over it or suffering or enduring it. I regard it as perfectly normal to fail and make bad decisions. I think the tragedy in life is to be so timid that you don't play hard enough so you have some reverses." - Charlie Munger

This edition of The 5 Minute WrapUp is authored by Jinesh Joshi and Rahul Shah.

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1 Responses to "Is it important to know names of stocks you own?"


Feb 5, 2015

In your article on how EASY MONEY PRINTING will affect the US ECONOMY

How is it possible that inspite of Printing DOLLARs by US Central bank - how is the Dollar strengthening.
An oversupply of Dollar should reduce the price of dollar how is it strengthening?

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