This could well be your worst investing mistake...
(Sep 21, 2015)
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In this issue:
» Wait for investment cycle revival likely to take longer...
» Rate cut is no solution for sustainable economic growth
» A round up on markets
» ....and more!
Last week brought an information deluge for investors. There were countless articles and discussions on which way the US Fed will go and how the markets will react. Now that the Fed has stuck with the status quo, the next theme keeping the financial channels, journals and unfortunately, investors busy is if RBI governor Mr Rajan will go for a rate cut...and what impact it would have on markets.
Easy flow of information was meant to make our lives easy. But as far as investing world is concerned, it has only resulted in confusion. News has become business. The channels need to cover something. The financial journals have to fill pages. Communication has been taken to a different level. The news is not disseminated, but at times created. And if there is any field where consumerism is flourishing like nowhere else, it's the business of news.
In a tech-savvy world where information is transmitted in not even seconds, common man has been flooded with facts, data, and information. Amid all this, real and meaningful knowledge has become a casualty. Add to this the ease of trading. And what you get is a perfect recipe for investing disaster.
Blame the human psychology. If you do not pay attention and fail to act, you feel left behind. All this news and information can fool you into presuming that you are getting knowledge. This triggers the action itch. And before you realize, you commit perhaps one of the worst investing mistakes.
One thing that has kept investors from maximizing returns is pre-mature selling on false knowledge triggers. To them, I offer these relevant words of wisdom from Mr Buffett: "I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."
Trust us. The economists know no better. What better proof than the state of global economy today? Irrespective of their forewarnings and actual booms and bursts, the stock markets have over time returned more money than any other asset class.
So here is today's investing advice: Stop complicating things. Your returns over time will not depend on the number of stocks you bought. Or the number of trades you made. Or how abreast you were to the latest macro developments. Turn off the financial news channels. Stop listening to every so called expert and economist. Instead, when investing, if you put half your time and energy on long-term trends and on stock selection, you would spare yourself the agony and misery. Not just that - you would have plenty of time to invest more productively.
As history suggests, you can count on madness in global economies and markets. So consider the worst-case scenarios and select stocks that you believe will survive all global crises. Minute-by-minute updates can be helpful when you're looking to buy a good stock in attractive valuation zone. To that extent, news could contribute to wealth creation in the long term. But generally, successful investors avoid the noise.
And as always, diversify your portfolio. While investing in good stocks at right valuations will earn you higher returns, diversification can be the best insurance against ignorance.
So set your focus right and know what to ignore. Some of the best investors and investments go back to a time when there was no internet, no cable, and no live market updates.
Do you think that too much of financial and stock market information does more harm than good? Have you ever been a victim of 'information overload'? Let us know your comments or share your views in the Equitymaster Club.
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In Modi's regime that was initially loaded with acche din expectations, one of the major premises of turnaround was revival in the investment cycle. We have often suggested that a revival is not an overnight miracle but a slow paced journey that will need reforms and patience. Not many believed us. Well...The numbers are here...And they have a disappointing story to tell.
Contrary to expectations, the capex cycle is not turning around for cash rich PSUs. As per an article in Business Standard, the capex data for 36 PSUs for last 3 years suggests a decline across sectors in 2014-15. As compared to 27.8% YoY growth in capex in 2013-14, the fiscal 2014-15 witnessed a decline of 23.5% YoY. The sampled companies account for around 88% of total capex in 2014-15. These companies represent sectors such as power generation and distribution, refineries, crude oil and natural gas and the rest clubbed under 'others'. As the chart suggests, the decline is broad based. It further suggests that initial optimism was not grounded in reality. It's not just the PSU capex; the dividends have declined as well. And if cash rich PSUs are reflecting this trend, then in the private sector, and in a bad debt ridden banking system, things are unlikely to be much different we believe. Given the surplus capacity and low demand, the wait for an investment revival is likely to take longer. In the meantime, we believe investors should stop speculating on such broader themes and focus on bottom up approach of stock selection.
Investment cycle revival remains a mirage
After Fed's decision on a rate hike, the next event that markets are speculating on is monetary policy review. It's no easy time for Dr Rajan. The industry and government is insisting on a rate cut, suggesting any other action is likely to be in the way of economic growth. However, what Dr Rajan is insisting on is a sustainable growth. And that is something that no monetary policy can support if the fundamentals are not in place. While inflation has eased of late, supporting the case of a rate cut, India has to cover a lot of ground when it comes to reforms. These are quite volatile times for the global economy. In these times, for an emerging economy like India, it is important that we do not take our eyes off the goal of a sustainable recovery while chasing short term growth.
While Indian stock markets recouped early losses, they were still trading below the dotted line in the afternoon trading session. At the time of writing, the BSE-Sensex was trading down 36 points (down 0.1%) and the NSE-Nifty was trading down 9 points (down 0.1%). The S&P BSE Midcap index was trading up 0.3% and the S&P BSE Smallcap index was trading up 0.9%. Sectoral indices are trading mixed with stocks from the banking and aluminum sectors leading the gainers. However, FMCG stocks are witnessing maximum selling pressure.
"If you aren't thinking about owning a stock for 10 years, don't even think about owning it for 10 minutes." - Warren Buffett
|| Today's investing mantra
Publisher's Note: Vivek Kaul, the India Editor of the Daily Reckoning, just made a bold call - Real Estate prices are headed for a fall. Well, if you are someone who is looking to buy real estate, or is just interested in the space, I recommend you read Vivek's detailed views in his just published report "The (In)Complete Guide To Real Estate". To claim your copy of this Free Report, please click here...
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|This edition of The 5 Minute WrapUp is authored by Richa Agarwal (Research Analyst) and Ankit Shah (Research Analyst).
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