Nov 29

Correction in the Markets and What should an Investor do?

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I wrote in August, in my last blog that the Sensex could correct sharply. It was at 37852 level on that day. It defied my logic, as the markets are always illogical. It peaked at 38896 a fortnight later on Aug 28, 2018.  And then  it did correct sharply.  In two months or approximately 40 trading sessions, it reached a level of 33349. That is an approximately 17% fall. Stocks with a beta of 1 would have fallen in price by 17% but the mid caps where the party was on, corrected by 20-40%.

And that is the time Intelligent Investors go to the mall to buy with their shopping lists.  Some corrections or fall in prices were genuine as the businesses were overpriced. But the others were just beaten out of shape by sympathetic detonation. Just because others were falling, they were also pushed in the melee. Stock market investments are like climbing a Vaishno Devi or a Tirupati temple. It takes a long time to reach the top. You will take rest, you will walk on flat surfaces, you will go down hill a bit, but ultimately you will reach the top. What happens when you reach the top, you start a downward journey. Downhill moves are always faster. You take less time in climbing down compared to  climbing up. Same is with Sensex. It may rise or climb by 2000 points in  60 sessions but may drop down by same in just 3 trading sessions. And that is what unnerves investors. It should not.

If you have cash in your account, the simple strategy is to continue with your SIPs in the mutual funds. Buy some good businesses going at reasonable prices at current levels — Mahanagar Gas Ltd (Rs 817),  Akzo Nobel (1575),  Swaraj Engines(1435)and Godrej Consumer(730).

Think in terms of what businesses will survive for 20-30 years and then think, which businesses will require less assets to keep earning for those 20-30 years, once major investments have been made in setting them up. And then look at their managements. You will get some wonderful results. Even if you go wrong marginally on the buy price, you would still do good.

PS. I made a visit to the National Museum over the weekend. You would be amazed  to know that the design of pots , and pans which the Harappans used is the same  till date. Only  the material and coatings have changed. Whoops ! 6000-7000 years, survival. Wish some Harappan inventor had patented it and left it for his generations to earn from the royalty and feed on. :-))   Look for businesses which imitate nature and survival. Businesses which are anti fragile.

 

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