Markets have once again started correcting. This time it appears that correction is happening at much faster rate. This could be because there are real concerns on marco-economics side.
Rising Crude Oil prices have always been a pain point for India as we are net importers (oil and Gold). This leads to pressure on dollar reserves and hence currency weakness. This increases cost of capital in the country and leads to fall in asset prices, in stocks and bonds.
Last 2 years, the most optimistic bunch of experts – brokers specifically – highlighted that low bond yields are the reason for rise in valuation multiples and extended market rally. Now since macros have deteriorated, this argument doesn’t hold true. We always believed that there is only one reason why stocks go up. It is because growth in profits of listed companies.
Our strategy doesn’t change with market environment. We stick to buying good stocks when they are out of favour and/or when they are growing in lines with their profit growth. We avoid stocks that have run ahead of their profit growth.
We are seeing correction wherever there is near term growth uncertainty. Maximum market participants focus more on 12-24 months growth. Since we are long term investors we consider buying stocks from 3-5 years perspective. We must realize that with so many intelligent people picking stocks, there is no reason we would get stocks cheap. Only reason we get a bargain is because near term prospects are not good.
We will be buying stocks as they get cheap. They may go down further as we wouldn’t know their bottom in advance. We are happy to buy & hold them at a price from where we can earn more than 13-15% CAGR over long term. We are comfortable seeing temporary losses as our focus is on 3 year hence price rather than next 3 months or 6 months.
Ensure you buy ALL the stocks in recommended allocation. We don’t know in advance whether every stock idea would do well. But together they will. These stocks may go up and down in short term – Don’t be afraid. We will have diversified portfolio of 20-25 stocks.
Besides, we have presented 10-yr X-ray track record for each stock. Though past performance is not a guarantee for the future performance but it definitely helps psychologically to know that you are investing in great companies and not fly by night operators. It gives you comfort to add more as they go down because cheaper you buy, higher is your upside.
Success in investing depends on 2 things: First is research which is no doubt important but second is more important, our action under extreme scenarios. Often we acknowledge importance of buy low & sell high. But when time for BUY Low comes, many shy away as they are afraid of seeing short term losses on portfolio. It is painful but that is how one makes money in stocks. You can’t buy high and sell higher, because that’s done consistently only by liars.
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