Living in times of bull markets
We have just lived through the first leg of the bull market in India and as with all bull markets there is no dearth of fund managers, individual investors, sovereign funds, high net worth individuals etc. who have done exceedingly well for themselves and their investors.
This definitely is a reason to raise toast – As someone said “Make hay while Sun shine” and a single bull market allocated properly can change your life.
and I for one definitely don’t belong to the school of thought which cribs on over valuation of securities as majority of who crib on valuations over companies leading bull market are the ones who don’t own the company. I have seldom seen people being unhappy when there holdings are hitting upper circuits every day 🙂
Cribbing takes away precious energy and is of no use, if you think a security is overvalued / momentum driven / operator rigged just move on there are 5000+ listed companies, I am sure there will be few with whom you will find peace.
But as Warren Buffet said stocks can’t outperform business indefinitely.
What could be more exhilarating than to participate in a bull market in which the rewards to owners of businesses become gloriously uncoupled from the plodding performances of the businesses themselves. Unfortunately, however, stocks can’t outperform businesses indefinitely, Bull markets can obscure mathematical laws, but they cannot repeal them.
While I don’t know when the party is going to get over, I surely know party will get over. Stock market is one of the few place where history repeats itself again and again. We have to ensure we protect our gains / fortunes made in these markets as bear markets can be long, tough, lonely and tiresome.
Cash and Courage
would be required when the party gets over, remember without cash courage is of no use and you can only have cash when you have a sell strategy, only few companies are buy and forget types. Most companies would become a compelling sell at extraordinary prices, the logic is simple, why would you wait for earnings to catch up for a 300 PE stock as it may take years (even if the company is growing fast) for earnings to catch up.
Quality is rare
Ugly ducklings do not become swans overnight (in fact they never), price appreciation and compelling stories (often told by vested interest) deceive us to believe that ugly ducklings (commodity companies) are swans (moated business). Think before you pay up. If the intention is to ride momentum go ahead and play the game (with strict stop loss). The problem occurs when we convince our mind that we are paying 50 PE for quality (read Moat). Remember the easiest person to fool is yourself.
Quality with longevity is even rarer, a beautiful quote from Amitabh Singhi
Capitalism exerts a ruthless force on all companies and industries, often destroying any chance any one company or industry may have of making above average returns on equity over long periods of time.
Illusion of achievement
is built up because our hypothesis (true or untrue) is quickly validated by markets. We are biologically configured to show off, suddenly flyers / tweets/ mailers would start floating on returns made in days/minutes/hours. I also had developed this false illusion , when I started sending my performance records to some of my loved ones (to show off) and detractors (even bigger show off) highlighting CAGR in circles 🙂
without realising the invisible hand (or rather hands) behind my performance
- Low base
- Portfolio didn’t went through a proper bear market (5 year record)
- Most investment made at onset of a bull market (2012/2013)
- even more Luck
Don’t let this illusion grip you as this will lead you to mistakes. Reward yourself if you followed a process and adhered to your investment philosophy, then give yourself a bear market or two and if your results are still intact then consider it as an achievement.
As Warren Buffet advised
In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond.
as bargains would be far less then what were available few years back. There is no harm in tempering expectations (don’t confuse this with going down in quality), this will help you in making realistic decisions. What I have found in my limited experience is not every decision will go our way, we need to live with and learn from our mistakes.
Many a times the instant success in bull markets de-focusses us and we stop learning. Remember what Laurence Endersen said
Choosing lifelong learning is one of the few good choices that can make a big difference in our lives, giving us an enormous advantage when practised over a long period of time
Don’t let few wins dislodge us from our mission to become lifelong learner. If stopped this is would be most serious harm that bull market could every do to you.
Finally keep persevering my friends !
The best among us are not more gifted than the rest. They just take little steps each day as they march toward their biggest life. And the days slip into weeks, the weeks into months and before they know it, they arrive at a place called Extraordinary.. Robin Sharma
Happy Investing – Share your thoughts below on how are you managing this bull run