Do you think predicting the market in the short term is like predicting weather and we should instead focus on predicting the season?
One of the activities in the market where I would say 99% of energy is wasted is timing the market. Nobody gets it right but nobody believes that they cannot get it right. Time and again they do not get it right and yet they try to. Even small and unknown investors would try to buy at the bottom and would try to sell at top. Then of course the traders and all sorts of investors would definitely try to refine their entry price and exit price but it is not possible to time the market.
In the last 35 years, if I have seen one thing it is that I just can’t do it. I had given up much earlier in the game, maybe in 1994-95 when I first read Warren Buffett. One of the biggest learning was this that you cannot time the market. And I took it to my heart and I practiced it. In any case, I was a pretty voracious stock buyer from 1987. I never had cash but that time the amounts were Rs 1-2-5-10 lakh. So I used to continuously buy stocks against my brokerage income also. So I was never timing the market and we did not know what the market was; we were bothered about the stocks. We were very simple but it worked. Do not time the market.
Like this time, I was very bearish at 7,500-7,600. If you see the commentary, I must have come in and talked when the whole thing was looking as if the world was breaking down. I do not know for how long it will be broken down but that was the only discussion. We were discussing what you can see today but the portfolio strategy was very clear: remain 100% invested. That saved my skin this time because I still do not see how the world is fully done with Covid and yet the market is up significantly more than 50% from the bottom.
There is a lot of liquidity and that is the reason why markets are going higher. Now both of us can say that interest rates will remain low for a long time and liquidity will be abundant. So what is the endgame for a market which is going higher because of liquidity?
I do not know about the market and where it is headed frankly. I will buy it when it drops 3-4%. I also feel a little sad but I have no clue and I do not want to apply my mind where the market is headed. I am interested in whether I can find one idea because I have seen time and again every crisis throws a much bigger opportunity in a gap of one or two years. I will give you an example. We had started with zero in 1990 and 1992 is when the Harshad Mehta bull run happened. We made Rs 30 crore; no speculation, just the continuous buying. The market had tremendous momentum. I have never seen that kind of market momentum at any point of time in my life and we made Rs 30 crore. It had to come to an end and it came to an end and it dropped by 65%. Then we thought we are never going to make anything big. In three years time, the market threw the opportunity of a software boom in 1995-96. Satyam, Infosys, NIIT and a whole lot of companies got listed and that put a country like India from literally nothing to the software giant in the world. And we made tons of money between 1996 and 2000.
After the 2000 boom, again it collapsed. The commodity boom happened, the China boom happened where oil went to $150, steel went to $1,000, zinc went to $2,500 from $200-300; so you did not know what was ahead. I know one thing: some new theme will come. It will be bigger than what we have seen in the past. We should keep our eyes and ears open and we should be willing to take opportunity on our side. So let us not time the market. Let us stay invested and let us remain solvent and be happy to participate in whatever newer game starts.
In stock markets, we always try to look at the next big thing. We focus on where the puck will move. Today there is a consumer boom and the same theory has been applied. So if companies change, if the world is changing, if emotions are changing and if communication is changing, why are the rules of the stock market not changing?
Stock market is a simple thing. Look at the guy who makes money or the companies which make money. If you invest in that, you make money. That is the simple theory. It is only about the earnings. It is a weighing machine in the long run and voting machine in the short run. We are a little patient and long term investors have to keep seeing where the earnings are going. If with some kind of confidence, I can forecast the growth of the earnings or the earnings of the companies, that is where the edge is.
Like when Bharti had just broken even in January of 2003 and when the concall happened and they said we have broken even; I had done my model and I could see in the next five years, this company is going to mint money like thousands of crore. They are going to make maybe Rs 3,000-5,000 crore in a year and for 5,000 I could buy the entire company at Rs 25. So you get to see these kinds of spots and particularly in Indian economy which is one of the fastest growing economies in the world and with a potential to become $10-15-20 trillion dollars in the years to come. You have this kind of opportunity where in simple businesses, you give birth to an entrepreneur or a company which grows leaps and bounds in the next 10 years.
Like Bajaj Finance, in 2008-09, was less than Rs 500-600 crore market cap and it got created in the next 10-12 years you can see what they have done. And it is a very simple business of lending, it is not some rocket science. It is not a Google or an online business. So the next big thing will come. Now what is that I do not have a fix on it yet. I have to keep watching and I have to keep my ears and eyes open and the stock market will give me that signal.
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