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The US$4 Trillion Milestone: Is it Time to Become Cautious in the Indian Stock Market?

Dec 1, 2023

The US$ 4 Trillion Milestone: Is it Time to Become Cautious in the Indian Stock Market

One of my favorite shows - Shark Tank will be back soon, sharkier with more fangs.

For one, the number of judges is up from 6 to 12.

But more than the number, it is the roster of judges that has me excited.

A notable name as per the reports is Radhika Gupta, the CEO of Edelweiss Asset Management Limited. Another is Ronnie Screwvala who needs no introduction.

So far, it has been about the entrepreneurs with a lot of hard work, but to be fair, also a lot of luck for having access to cheap funds that allowed bleeding businesses to scale up. The road to profitability, when they judged the contestants, was always secondary.

For this season, with a refreshed set of judges, I hope a new and sharper lens to assess sustainability, will be used.

Much as I'm interested in watching new pitches and their assessments, I hope to see an honest review of how the bets made in earlier season have played out. While it will be too soon to come to a verdict, the direction itself would be a good insight.

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As I have shared with some of my subscribers earlier, if we broaden the observation to the similar show in the US with longer history, the outcome has been far from encouraging, even for the savviest of investors.

In a parallel development, Mark Cuban, a popular face on ABC'S Shark Tank, is leaving after one and a half decade at the show as its judge, for personal reasons.

Although the name needs no introduction, Cuban is an American entrepreneur with net worth estimated at US$ 6.2 bn.

Mark wears multiple hats. He is a businessman, investor, movie producer, author, famous TV personality (thanks to his popularity on Shark Tank), with his money in multiple ventures, from sports to cryptos, pharma, and so on.

Apparently, he has invested over US$ 20 million in 85 deals over the 111 episodes of the show. Now that's a decent time frame and a good number of investments to assess performance.

With his experience, both as an entrepreneur and investor, one would expect him to have a Midas touch.

Turns out that's not the case.

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In an interview for a podcast, he revealed that he has not made any profits from investments made on the show.

That could be US$ 20 m gone down the drain.

But let's learn from his worst investments. I believe many of us have lessons to learn from it.

He considers his investment in 'Breathometer' the worst of all.

It's a smartphone-compatible breathalyzer device to help consumers in deciding whether they are sober enough to drive legally after drinking.

That's as new age as it gets.

That was one venture on the show that witnessed investment from all the five judges. While Mr Cuban still likes the products, he seems disappointed in the founder who is spending time on fancy islands, under the pretext of business networking.

What more, there was an expensive settlement because of the product's inaccurate readings.

Oops.

Looks like even the best and most experienced of investors are not immune to the seduction of great storytelling (whether or not with solid foundation), the action itch, and fear of missing out.

Although I must admit it is fun to watch the sharks fighting among themselves and compromising on valuations to invest huge amounts on founders without having any experience about their vision, thought process, and execution abilities.

In this interview, which was part confession, there are some insightful takeaways.

First, do not equate investment to entertainment.

Real investing that helps you make sustainable gains can be and should be boring.

There would be long periods of waiting before you find the perfect pitch to swing at.

Even after that, it is likely to involve a long waiting period before you get to see respectable returns. Also, you will not hit boundaries every time you swing a bat.

Second, look for proven businesses and managements.

Don't let a fancy narrative get the better of logic and prudence. If you must take a chance, do it with an amount that you are willing to lose. Never bet your shirt on it.

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Third, do not follow big investors blindly.

You can always learn from the mistakes and experience of others. But when it comes to selecting stocks, there is no substitute for research and conviction one develops through deep study.

While Mr Cuban can afford the losses he has made, most investors can't.

Side car investing can take you only so far. By the time you know what they have invested in, the price has already gone up. And value, if any, comes down to that extent.

In the listed universe of stocks, the odds are again stacked against you at the time of exit. They exit first. By the time you know this and follow, the valuations are already hit.

This is a crucial fact to remember, especially in these times.

The Indian stock market has hit a marketcap of US$ 4 trillion. This is a mark that the GDP of India is yet to catch up to.

This is the year when institutional and retail holdings have touched all time highs.

The insider activity, however, is in complete contrast.

As per a Bloomberg report, the last ten months have been a whirlwind of insider selling. Almost US$ 12 bn worth of stocks have been offloaded.

Now this is not a signal to sell and go away, but these times indeed warrant caution.

Warm regards,

Richa Agarwal
Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Agora Research Private Limited (Research Analyst)

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