If you look at the
state of our economy, the outlook seems very gloomy, the macro economy
environment has deteriorated. Nothing much has changed over the last one year,
the government apathy & indecision was the same, the structural imbalances
remained. Still the view from outside our country about India has very
negative. Interesting to observe for an investor, there are no new IPOs coming,
no rush for dmat accounts being opened and the retail brooking volumes are very
subdued. The valuations of some of our leading businesses have dropped off
their cliff. This is certainly a great time to buy stocks of diamond grade
companies. Money invested at the heights of maximum pessimism, is most likely
to yield fantastic returns. However it is any one's guess, if there is further
downside to the markets or it is going to recover from here necessitating a
staggered investment style.
A great learning in
this crash is in observing how the valuations of some very successful companies
have come crashing. Some sector leaders have gone by the way side. In-spite of
the tough economic environment, there are a few companies that performed better
than their competitors, clearly indicating that the people running those
businesses have made the difference.
Companies like TVS
have gone down in the same tough environment that Bajaj auto have performed
well, or look at how Infosys under-performed their peers like TCS until
recently in the same environment. The point therefore is, never overpay
quality, as the leaders of today and can become laggards tomorrow. Always
provide for margin of safety and account for unknown variables. That’s
precisely why I like today's uncertainty as they offer stocks at sufficient
margin of safety.
There are stocks that
are expensive, but do not deserve to be expensive, yet there are those that
deserve being expensive but are available cheap. We must differentiate price
and value. Old business models are getting replaced with newer ones. Unlike in
the past, newer companies come in faster and exit with equal speed. Look how
the telecom stocks looked revolutionary at one time, today they are
languishing. The old investing wisdom will have to be refreshed to keep pace
with today’s reality.
Regular readers may
recall of our ready-made apparel company, with a very high p/e that
almost doubled in a couple of years. So calculating future valuations and hence
the margin of safety gets tricky. We can't any more say, that p/e is too high
or too low unless we determine the growth and earnings into future.
I met Ashwin, an
investor friend at an AGM. He believes you can't stick with one strategy for
ever. When he was not maximizing returns from his investments, he analyzed what
went wrong and observed he was overexposed to Indian equity. So he increased
the weightage to International equity, currencies and commodity by
reducing Indian equity. He invested in equity mutual funds across North america, Latin america, ASEAN
& China. He explains ASEAN
fund has delivered the highest returns of about 30% in one year. For Ashwin, diversifying across stocks
or sectors is an old idea, diversifying across countries makes more sense.
Investing in multiple countries reduces volatility of portfolio, and increases
returns. Always concentrate on reducing risk, returns will come, he
explains. He used every tool in the kitty & is well positioned to make 18%
return this year. Here is an example of risk migration to manage returns.
The old ‘buy and hold’
strategy may not just yet be the best. After all, saving the shirt is a
serious business.
To know how to invest
in international mutual funds, you can contact Ashwin
Iddya / Ashwin or write to us at ram@learninvest.in
