Missing the target, getting the trend - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
Missing the target, getting the trend A  A  A
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12 AUGUST 2010


The BSE-30 Index did not reach the "target" of 19,000 and nor did it - with the help of enthusiastically strong foreign money flows - hit the 21,000 level by July 2010.

I had made that bullish call of a 21,000 Index on November 7th 2008 on an equitymaster webinar. Please note that the BSE 30 Index had closed at 9,734 on November 6th, 2008.

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So, you can damn me for missing the last 5% (from 19,000) or totally mis-timing the last 14% (from 21,000) or, as some like to, congratulate us for figuring out the +86% move, a pretty decent trend to ride on.

Useless information
As a long term investor, I like to study and figure out the simple themes that I can invest in.
Unlike many people, I don't drink multiple cups of tea or coffee every day to get my fix of wide-eyed energy.
And I don't need to stay tuned to any of the business channels to get my fix of useless information.
Or read many of the business magazines and newspapers for their news.
When I do read the newspapers or listen to the business TV channels, it is more to get a sense of which PR agency is paying whom to carry what.

Now, don't get me wrong.
Television is an important medium.
As are newspapers and magazines.
Or internet web sites.

But that's the point: the politicians know that and the business people know that.
If something is important and is followed, the interest groups will try to spin you some pretty fancy stuff.
And the owners of the medium will carry that message.
How many newspapers, internet sites, or TV channels make money on subscriptions from you? And how many make money based on advertising?

So, yes, I do read and see some of the stuff that passes on as "news" put out there. But, I am not sure if I would base my investment decisions on information that is fed to me - on information that can be manipulated for its visibility, its frequency, and its depth of content. What investor Jim Rogers recently referred to as the purpose of the PR machines whose objective is to ensure that the stocks of companies who hired them head north.

Again, there is nothing wrong in seeking visibility for any product, company, or business. But sometimes - or many a time - the line between visibility and self-promotion is blurred.

Take the case of The Honest Truth.

Is The Honest Truth a self-serving, self-promoting gimmick that is built as a snare to entrap the gullible investors into shovelling their hard-earned savings into Quantum Mutual Funds?
Is The Honest Truth a honey-trap of sweet Index forecasting so that equitymaster can bombard you with my 21,000 forecast on You Tube and lure you into subscribing for research reports and views on individual stocks?

Or am I sharing with you my views and experiences and asking you to stay away from the geniuses of high finance?
And not to overpay the financial wizards and keep your hand firmly on your wallet.

Does The Honest Truth enrich you - or enrich me?

A macro framework, a view on management
While I will let you ponder over who gains from The Honest Truth, I would like to lay bare the simplicity of investing for the long term.

I base my investment views on some pretty common sense stuff like:

  • What is the framework for where India is heading in an economic sense - are we heading towards rewards and incentives for growth (what we started in 1985) or are we heading to a framework of punishing people for enterprise (the Nehru experiment with Socialism that went totally wrong)?
  • What are the political and social risks for India? What are the trends?
  • What are consumers likely to want and buy over the next few years - and which companies can - or could - provide that service?
  • Which managements can I trust with my money?
  • What price am I paying to buy into the stock? What risks am I taking? What return can I expect? Over what time frame?
And I compare all this worrying over risk and return with how much guaranteed interest I could earn in the safest bank out there on a 3 year time deposit with no worries.

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Don't judge me by the Index!
I believe that individuals must put theirs savings to use - to work for them to help them leave a better life.
Very few of us will be like those grandparents we see on television ads hawking insurance as investment products.
Life is not pretty.
And the cost of living is heading up for most of us.

I don't have any stats on this, but - on retirement - probably 10% to 20% of us will have the money we need to maintain the lifestyle we have today and skip along like young folks even though we have walking sticks.
Another 30% to 40% of us will probably have to cut back on something to live decently. We may have to sell our apartment in Bombay and live in Pune; or sell the car we had because the costs of petrol, insurance, repairs, and drivers is increasing and becomes a drain on our investment income.
And probably 50% of us will find life tough.

While I don't believe that everyone who retires will be monetarily comfortable (challenges in Life will ensure some of us not that fortunate), I do believe that there are too many people out there who are investing in a way that will guarantee them a sub-par retirement life.

There is no substitute for hard work and there is no substitute for sensible, simple, and long term investing. But many people are doomed because of bad advice, or poor implementation of the advice they get.

So, while I may get the Index right or wrong, my real happiness comes from knowing that the 3 financial entities that I have helped start (www.equitymaster.com for making your own stock market decisions, www.PersonalFn.com for helping individuals plan for their future financial needs, and www.QuantumAMC.com for those individuals who trust the investment approach of Quantum Mutual Fund) are actually making a difference to investors.
And that they will sustain and carry on the work I started long after I am gone.
That would really make me happy.

Meanwhile, yes, let's see what happens to my call of the BSE-30 Index reaching 31,000 by July 2012.


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Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"


Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.


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16 Responses to "Missing the target, getting the trend"

Ranjit

Aug 17, 2010

I think predicting the index value is the wrong answer to the wrong question. Your skills and expertise lie in identifying value, and recommending it honestly to your readers or investors. Market index levels and movements often depend on liquidity which is difficult to predict. I tend to take your views on Index and prediction less seriously (though it is entertaining to read of course), but your identification of value or investment opportunities more seriously. Because even if the market did not hit 18000, the fact remains that there was tremendous value at 9000. In fact, good for us if it would have lasted a bit longer - we could have had more time to pick and choose stocks!

Like 

Rajiv Kapur

Aug 15, 2010

Dear Mr Ajit,

You were directionally bang on ! Your honest analysis , using simple analysis & analogy
is a breath of fresh air. Congratulations to you & your team !

warm regards

Like 

ameet

Aug 13, 2010

hi mr ajit.carry on the good work.we have entrusted you with our savings when you first launched your quantum long term equity fund.happy to know that there are still some people with values.

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SPS GILL

Aug 13, 2010

Mr. Ajit,
Let me congratulate you on the good work you and your team has been doing.
No one has seen future and can predict. Your assessment is correct and pse do not take it to heart as the lyrics of famous hindi song goes - kuchh to log kahenge. logon ka kaam hain kehna. chodon inn baton ko beeth na jayen raina.
keep up the good work.
ESS P ESS

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bsatyandra

Aug 13, 2010

I request u to kindly launch a simple product which automatically does safe asset allocation depending on the age of the investor. One has to only keep investing regularly for retirement.Also link up with SBI so that people from across India can get benefit.

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K Rohidas

Aug 12, 2010

Dear Ajit - I think you are a honest man doing your job honestly and being very honest to people you think you are responsible to, which includes, besides your family/close friends/collegues/staff -- equally importantly your investors whose money you feel personally responsible for, because they place it in your hands on trust.

Lesson to learn from Index NUMBER prediction is that it is a hazardous path, could be detrimental to your personal credibility forcing you to explain it away as you just did -- with statements such as after all you were more "closer to it than farther from it"

Best is to express your HONEST opinion of the market over say six months or a year in terms of direction ( 'sharply up', 'moderately positive', or 'very very cautious on the negative side' etc) -- give your reasoning for the view and add that "all this is subject to force majeure". This directional approach is more likely to be taken seriously by your audience (because they know you are a serious person with no axe to grind) than be tempted to follow the number you give -- because they know you may well be wrong on the number.

I have respects for you
Regards

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Kalpen Shah

Aug 12, 2010

Hi Ajit,

Getting the trend right is all that matters. It dosen't matter if you made the last 10-20%. In fact I believe in the concept of never going for the last 10-20% of your target and leaving it for someone else to make money on. That way you can be sure of not losing most of the times. Considering that you made the call just a couple of months after Lehman collapsed, with Rama Raju scandal yet to come out, and the polls not far away, it is a truly fantastic call. Most of the market experts were predicting levels of 6k and below at the time in fact even in March/ April 2009!

I know I held my investments tight and did not cave in to the lows of March 2009 partly based on your assessment. Keep up the good work!

From your predo for 2012, you are suggesting de-coupling from the developed markets. Most of the calls on the developed markets, including that of Bill Bonner are negative and quite rightly so. I would agree with de-coupling, but there has to be pain first. So starting this Sept/ Oct expect the markets to go down with wild spread panic. Will be quite amusing to listen to targets from all the experts then!

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Gaurav Gupta

Aug 12, 2010

I believed Mr Dayal when talked about 21 K in 2011. I think that he speaks honestly and truthfully.
However given the interlinked global economy and bad vibes emanating from the US market, I believe that the Sensex will stay around 20 K after 1 year. Lets see who gets closer :)

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rp77

Aug 12, 2010

Dear Ajit,

Thanks and all well said. Many among the investors don't think in terms of long term investment, wealth compounding, retirement planning instead try to make a fast buck. In my view day to day trading takes what it gives and sometimes more. It would be helpful if you can come out with specific stock examples highlighting wealth compounding... Kind regards

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sathya

Aug 12, 2010

Actually you have met the target! Except for Reliance, which you always suspected! If it had moved with the market, it is 20000 for sensex!

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