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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.

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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 🙂

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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)
  • Luck
  • even more Luck

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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.

 

Temper expectations

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.

 

Keep Learning

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

16 comments

  1. tresa says:

    Hi Vivek,

    With an investment view of 3-5 yrs, what are the stocks which you think would be a decent compounded (15-20%) with minimal risk apart from hfc’s. Thanks.

  2. Mohit says:

    Hi Vivek

    Thanks for writing these useful articles. I was trying to find the link to online stock valuation sheet(magic) but the link directs to a missing page. Could you let me know right page for it? Also what is the difference between offline version which is available for download on your site. Is the online one more comprehensive?
    Also do you keep adding companies to your database?
    Kindly let me know in comments or on mail.

    Thanks!

    • Vivek Bothra says:

      Hi Mohit,

      Thanks for liking stuff on blog, Magic tool is taken down as source feeds have changed data reporting format, It is unlikely to be up very soon. In offline version we need to just copy paste data from money control – rest of the stuff is automates, you can watch our youtube video Offline is excel based so more comprehensive than magic. Currently we have no intention to add to 2000+ companies we cover in Magic

  3. Jatin says:

    Hi Vivek… Great article… Probably at a good time as well… Looking at long term charts and breadth of the market, even the quality names are now looking like they might correct more than expected….

    I think for the time being the bull market may already be over…. Stock picking skills will now be more important this year to make money as the rising tide would not life all the boats now…

  4. Billu says:

    You expect a bull market (as I read it), and low oil price would give it to India. But without the upper-house numbers, how do you see Modi getting bankruptcy & labour laws passed. As such, how sustainable would this bull run be?

  5. Piyush Patel says:

    Hi Vivek

    Kudos, you have given the best real picture ( which is rare as most of analyst are just taking care of their own interest) of the Indian stock market, which after a one direction multi year ride from 2013 to 2015 makes everyone believe that they have mastered the art of stock picking. It is extremely important to be grounded and cool headed as we enter this phase of uncertainty and maintain our discipline of value investing.

    I was just checking the charts of many companies which have made multi year highs in 2015 and majority of them broke the price range in April – May 2014 when the Modi wave started. It has been an easy sailing for lot of the stocks. The real challenge lays ahead to identify good companies with intrinsic values which can compound 12-15 % over a period of time.

  6. VINEET bothra says:

    As I always learned from my life, life is a circle and nothing is permanent … I expect some time of consolidation in near future as proper balancing before one can get next set of returns ….nice article bro

  7. nkhanna23 says:

    Hey Vivek,

    I really admire your understanding of subject and analysis. I am a regular reader of your posts. I was introduced in tock market by someone and I made lots of mistakes like buying bad stocks, selling or buying after reading on some random forum etc. I realized that I am missing something and not doing it without proper understanding of the business, system etc.

    I bought graham’s book and as a new comer it was hard to understand and started loosing interest. Luckily(I din’t stop pushing myself) found couple of easy and good books written by peter lynch and Basant maheshwari.

    I still feel there is lot to learn. I request you if you suggest some good books on different aspect of business like analysis, valuation… etc. It will really help people who are serious about this art.

    Regards
    Nitin

    • Vivek Bothra says:

      Hi Nitin,

      Glad you are finding these blog useful – Some books I like are

      1. The Go-Giver: A Little Story About a Powerful Business
      3. The Art of Thinking Clearly: Better Thinking, Better Decisions
      4. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers
      5. The monk who sold his FerrariIt’s Earnings That Count
      6. The Little Book of Talent
      7. Pebbles of Perception: How a Few Good Choices Make All The Difference
      8. Thinking, Fast and Slow
      9. One up on a wall street
      10. The Secret
      11. The 100 dollar start up

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