You can download this as pdf from here.
we bid farewell to a year, we would all like to forget but likely never will,
here is a short note of some of the thoughts going on in my mind at this time.
long term portfolio continued to perform as expected. It is comprised of strong
businesses and our investment into the Pharma sector early in 2019. So, we were
able to participate quite nicely in the pharma rally. As I have said many
times, I believe the pharma and chemical sectors are in a secular growth phase
and are likely to perform well for the next 2-3 years or more. So, the
objective is to buy prudently and then sit and wait. The most important aspect
in a long term portfolio is to wait patiently for the compounding to work its
magic over time. The constant urge to do something is one of the worst enemies
for an investor. It pays to always remember that investment return and frequent
activity are not correlated in any way.
markets today are overvalued by any methodology you care to use. The future
continues to be uncertain, as always. The only thing that is keeping the
markets flying high is the global liquidity flows. But the counterpoint is, the
tap does not look to be stopping anytime soon.
this year, we are likely to see a sharp correction. Unfortunately, investors
across the world have probably taken the wrong idea from both the global
financial crisis in 2008 and the Covid crisis in 2020. That the central banks
will bail them out always. What people seem to forget is that money printing
can never be a long term solution. It is a kick-the-can down the road kind of
approach. The more debt-ridden the global economies become, the longer and
harder it will be to get back on to real prosperity. The new investors who have
never really seen a prolonged bear market, which includes people like me, who
have been in Indian markets for only about 20 odd years, cannot really fathom
the outcome of a long drawn bear market. In fact, to be fair, we Indians have
never really seen a long drawn bear market which also coincided with a
recession or prolonged phase of low growth in the real economy, the likes of
which Japan has seen for 30 years from the late 80s till about a few years
has been a lot of global changes in socio-politico-economic structures which
have made macro analysis a very interesting but utterly worthless exercise to
do!! Nevertheless, as investors, we need to be aware of the context of our investments.
next decade is more likely to focus on themes around technology adoption in
different industries, climate change, supply chain redundancy creation,
nearshoring or insourcing of manufacturing, more social-focused spending led by
ESG. The more adoption of technology we see, the more jobs moves away from the
unskilled to the skilled and the more social and economic divide increases, the
more social and political strife we will see. It is a vicious cycle and I don’t
know how it will play out. But the global socio-political situation is what
really scares me. Emerging countries in Asia and Africa are better placed for
economic growth with their young populations for the next 2-3 decades. And we
are likely to see this slowly playing out. With the backs to the wall for all
central banks, the flow of cheap money is unlikely to abate anytime soon. It’s
like being on drugs. Once you get started on it, you can’t really get off it
that easily without going through an enormous amount of pain.
year I launched two different advisory services in addition to the long term
advisory that I had started last year. The first one was Quantamental which was
started in March and then Hitpicks, based on technofunda principles, in July.
Both were to add to the different needs and mindsets of investors and also to
address my need to diversify my style of investing.
was a result of a couple of years of delving into quantitative, systematic and
trend-following techniques. All this started as a result of trying to fill my
own lacunae in investing that I could identify. Being a quality-focused long
term investor, I was realising that I could not capitalise on short term strong
business and stock price momentum. In addition, due to my interest in
behavioural psychology, I was convinced that the biggest determinant investment
result is the mindset. Any system that could capture these short term bursts
and also codify the big decisions required during an investment would be
beneficial in getting better results than otherwise possible. As I keep
learning, I intend to refine and improve the current Q30 system. I also keep
exploring other types of systems. Primarily there are three types of systems
possible – momentum, mean-reversion and shorting. The final objective, at some
future point in time, is to be able to have these three types of systems
running concurrently or a single system which blends all three.
second advisory I started was Hitpicks with Hitesh Patel. Hitesh has been a
friend a mentor in technical analysis for me over the last couple of years. It
is an exploration into the world of technofunda. Hitpicks is not intended to be
a short term trading advisory, where one gets “calls” to day trade or
swing trade. As in the long term advisory, here also, our focus is on
identifying good businesses which have some interesting technical chart
pattern. The usual timeframe for a recommendation to play out is about 3-4
months. Like in any trading system, we have had a fair share of good and wrong
picks. But, overall, I think we are on our way to meet our objective of good
compounded returns over the next 2-3 years.
focus for me continues to be able to generate above-market returns without
taking a great deal of risk. I am happy
making less money than the next person, but I am not willing to take any undue
risk which will jeopardise my capital. So, the focus on quality first will
always, do keep sending in your thoughts, comments and questions. They do help
me immensely in thinking about different aspects that I may not have focused
you a healthy, happy and enriching 2021.
You can download this as pdf from here.