Taking stand against a herd though often threatening for the short term, could be highly rewarding over the long run, for those who survive the initial onslaught. The correlation becomes stronger when one is faced against a thundering herd on the stock market.
Research desk at Anavaran dared to be ‘cautiously greedy’ when fear was in high demand on the Dalal Street. In December 2011, market were at sweet spot offering high upside potential with limited risk of downside. However, nearly 20% rise in benchmark indices and more than 50% surge in some of the fallen heroes of yesteryears have bridged the price-value mismatch prompting a change in our outlook to ‘prudently neutral’ as we saw an end to Great Indian Share Sale.
As stated in our last article we still see money making opportunities in the stock market and would not like to be branded a bear, at least not as of now. Since then, Sensex have risen over 8% to cross our base case target of 18,000. Sensex is now inching towards the top end of our forecasted range of 12000-20000 for 2012. However, it would be prudent to reiterate that there are lesser profitable investment avenues than those available at end of 2011 and even these require longer investment horizon of at least 18 months to materialize.
Games that Mr. Market Plays
To get a feel on the market, let us have a look at the investment strategies employed in the share market. In our opinion, at any given time, there are three games being played in the share market; that of investment, speculation and gambling. In investment, gains come from increase in size of cake, while in speculation and gambling usually one persons gain comes from other persons loss.
Value style of investment, a philosophy that we @ Anavaran adhere to, seeks to find disparity in underlying value of a company and price of the stock. The time horizon is the same time horizon it takes to work out the company’s strategic plan and business cycle to complete, usually 2-3 years.
From Diwali to Christmas of 2011, share markets were ideal for value style of investments. A value investor could find oceans of price value disparity during this period. Some of these stocks that we rated a BUY during this period include Sintex, JSW Steel, Onmobile, Nocil, Punjan & Sind Bank etc.These ocean of disparities narrowed down to rivers in Jan 2012, (BUY-Allahabad Bank) and such disparities are not more than rivulet streams currently. While we like companies such as Atul Ltd, Aditya Birla, Tata Chemicals, Sandesh we think price is not correct to enter these stocks.
The speculators, who mostly rely on technical analysis and charts, don’t care a lot about the underlying value of the company. They are largely concerned with the underlying demands of buyers and sellers in the stock. They are looking at the beauty contest aspect of the stock market -wiil people the stock and bid it up or not. It’s judging human nature. There playing field spans from fundamentally strong companies to those which are mostly dubious in nature. PSB which was more of a value play in late 2011, has turned out to be speculators favorite since news of LIC buying 5% stake in the company hit the markets.
Last and also the least are great gamblers of the share market who are just speculating on the speculator, making a wager because they feel they have got a instinct that knows what’s going on in the market. The stigma of converting the share bazaar to satta bazaar lies on them. With their perpetual search for GREATER FOOL, Evergreen SELL stocks like Avon Corp, Pipavav, Jupiter Biosciences, Karuturi Global, KS Oil and hordes of other empty promises are gambler’s favorite bet in share market.
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