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Commentary

The Scorecard of Predictions and Statements

This weekend I thought I’d go back to my posts long long back – my patience ran out at 2007 – and see if I had made grand and silly predictions about the great future, and how those predictions panned out.

Someone told me recently that the 4 most used words in the Mumbai Stock Market are “I told you so.”. And I hate that phrase. So this is not an “I told you so” funda – it’s just a personal report card, to see how the statements of a a random stock market viewer like me have panned out. It means nothing more than that I got bloody lucky.

Jan 2007: The lack of irrational exuberance

No irrational exuberance yet. Everyone’s a skeptic. Everyone’s a muh-bola-bear. This is the time for smart investors to buy, and buy into the right shares. In fact, there will be small, healthy corrections every few days – choose that time to buy.

…I bought BHEL at 2120 on Jan 15; simply believing that a strong order book deserves a better valuation. …. most likely I will sell if the share moves beyond 2800 within three months. [Which I did, later]

The sun has not set on the bull market. Not in this year. I have bought an exchange traded fund, the NiftyBEES, which tracks the Nifty- I believe that within three years, I will see a return of 50%. Individual stocks of course, are bigger growth stories than that; I’m buying my picks.

Hmm. The Nifty was at 4100 then (and it’s back to that level now). In the interim it had gone up 50%, to 6300, so technically I’m on reasonable ground there. I haven’t sold my NiftyBEES (not all of it) so I’m also technically stupid. BHEL did well, so did Reliance, but not DRL. And the sun did not set on the bull market in 2007, so I give this post +5.

Feb 2007: Is the Nifty Overvalued?

The Nifty trades near its all time high, at 4214 today. Is this too high? We have come up more than 60% from the June 14, 06 low of 2632. Everyone seems to be skeptical and is waiting on the sidelines, but is this market really overheated?

I expect the budget to boost earnings, but pare down speculative growth. That will probably not affect the Nifty very much, and almost definitely will push earnings growth to stay at current levels. That leaves room for growth from here – the market is at a high, but it’s definitely not overvalued.

Ok, sorta reasonable in the short term (1 year timeframe). So +1 perhaps.

March 2007: Big dips: how to choose stocks in a downturn

Reliance and IPCL will merge and the benefit will entirely go to Reliance….At the current price of Rs. 1285, RIL shareholders will have a company of P/E 15 or so – which, at the rate it’s been growing, is remarkably cheap.

Bajaj Auto at 2500! It was up to 3000 a couple months back! But that is no reason to buy, because 3000 could have been simply too high an expectation.

…interest rate hikes and slowing growth in retail lending will take its toll, and perhaps SBI will not grow at 20% or more in the next few months.

Reliance is up, Bajaj is stagnant, and SBI did go up to some 2,400 so I was wrong. Net 0 marks. Btw, I still agree with this post: Timing the market is a good thing.

May 2007: I exited Balaji Telefilms at 230, and it’s Rs. 168 now, so +5 there. Mentioned SRF target 300 from price 171, and it’s at 120 now, so -5. I said Exit all IT and the IT index has fallen from 5250 then to some 3500 now. So +5.

June 2007: In a post on DLF:

Be careful, folks. This is not the peak yet, and we still have to see the buildup of massive exuberance. But it seems to be coming. Be wary, and keep your stop losses handy.

Feel good post. But nothing in there really, so no marks.

July 2007: Sold BHEL at 1650. Sure, it’s at 1500 today but it did go to 2200+, but still profit is profit so +5. Exited SRF at a loss (but I already gave it -5 earlier). Gave Infy a target of 1600 (it was 1900 then and 1550 now), +5 there.

August 2007: The subprime problem is worse than we think. That’s interesting – didn’t remember I wrote it that early. +10.

Sep 2007: Riding the wave. This was my official note of riding the momentum:

Before every steep fall in the market, there has been a euphoric rise. I believe this is that rise for us. If we go up hard, we will fall hard. I’m not sitting on the sidelines – no, that is giving up too much of this opportunity. I’m just giving myself a 10% cushion.

No marks, but feel good.

Oct 2007: More momentum

I’m now up 28%, higher than the index move (finally!).

We are in the middle of irrational exuberance. I say “middle” because no one will know the end until after it happens. Yet, there needs to be massive retail participation before it all falls down, like Ring-a-ring-a-roses.

Okay. +5.

Nov 2007: The End Game Begins. And my predictions for the year after last Diwali:

Reasons:

  • US financial market is going to collapse. Lots of reasons for that, but I don’t like it one little bit.
  • Hedge fund redemptions are on and the impact will be visible post Nov 15.
  • The new mark to market accounting rules for financial institutions gets visible on Nov 15, and already some banks have revealed assets they own, that they have NO idea what their worth is, and that are greater than the capitalised base of the banks. Duh.
  • The Indian market data does not look good. Futures have moved to discounts from premiums, and there is a lot of call writing. The option data shows a lack of big investor participation on the buy side at least.
  • Distribution in large stocks, accumulation in midcaps. Yes, the retail investor is getting in. Time to move out and wait for the inevitable.
  • Trading distortions all over the world and accounting indicates that investors will churn out their profitable assets (read: India). And this is exactly what is happening.

Ok this sorta worked out. Also mentioned the Ambac/MBIA downgrade impact, way back in December.

In Jan 2008 I ended up buying stocks that went down a lot (and I got stopped out) but also in there was, “our market is overheated. At a 25 P/E we are pushing the envelope. To tell you NOT to invest would be stupid, and I now believe the market has a while to go before we come crashing down.”. Both smart and stupid at the same time! Also “Simply sell now” (Jan 18), and I made money from the crash.

Feb 08: Bullish on Gold (not much of a move till now), “I am bearish on IT even now” (silly as IT stocks probably moved up from there) and
Nifty not yet attractive (Fab. Nifty down another 25% from there).

That’s it. The rest is too recent to grade. Overall I got 60,000 marks. Because I know you don’t have the patience to count, and this is my blog and I can give myself as many marks as I please.

It was good to see what I’d written in the past. Just to see if I was off my rocker – and many times, I was – and my transition from this fundamental driven investor to momentum trader and finally to automated trading systems. It’s been a fine ride – each of the above have made money for me – and as always, I feel I’ve just been incredibly lucky. Thanks for reading.

  • Anonymous says:

    >What ain't clear is are you undermining fundamental analysis? I have been looking at my portfolio and several of the picks (despite a 30-40% drop in prices) are really not worth a sell. In the long run, is an automated system better or fundamental analysis? Somehow I feel that the simple theory always wins in the longer run and there probably is no alternative for good old fashioned stock analysis. What's your take on this? Also, I must admit that it's been a long time we've had any stock picks from you. How are you finding bank stocks now? Not ICICI or HDFC but some PSUs like Syndicate or Vijaya Bank — come on, @ <5 PE how cheap can one get?

    My holding period is 2-3 years.

    –Arpan

  • Deepak Shenoy says:

    >Arpan: I don’t know about fundamental analysis – not sure if it works anymore, because in fundamentals you gotta trust what the company says and these are not trustworthy times. But it works for a ton of people so I say go with what works for you.

    I might actually get back into some levels of fundamentals where the value is so apparent you can just go over and grab it. Not yet time.

    Automated trading is actually simpler than fundamental analysis. In fact the formula we use is so simple it requires no thinking whatsover. No understanding of balance sheets. No “dividend yield”. Just price. Nothing is simpler than that. Yes, to most people it doesn’t feel right – and to them I say do what works for you – this stuff works for me!

  • Roshan says:

    >Hi deepak

    I will give you 100000 points!! its my wish ..hehe
    Honestly,…I trust this blog so much..it has helped me gain so much knowledge and an idea about how things work in this strange world of stock markets.

    I liked your analysis of R power (bonus issue…u predicted the correct price after split)

    and also the DLF IPo coverage was useful.

    i also bought gold on ur recommendation as etf and i am 1n 10% profit..i can go and on

    Thanks for simplifying Things

    Roshan