…and you
thought LONG-TERM Investmentwas always right!!!!
How long is LONG-TERM?
How
long is TOO LONG?
(Some
interesting facts and notes on Long-Term Investment)
--
Megha Investments & Research.
NOTE: Throughout the article there
are contents which might seem like
criticizing analysts/experts etc. but it should be taken
in utmost genuine faith and a criticism
in fact against the ingenuine practices and vogues/fashions that have
crept into the business of forecasting, reporting and stock market guiding.
Friends, in stock market majority of
wise(?) and a hoard of known and unknown fund managers
etc, in news papers, books, TV channels etc, here and there,
every where, especially to the lay or retail investors, are seen
giving their invaluable(?) advise to do
LONG TERM INVESTMENTS into equities. These so-called (or
self-expressive) experts keep on imparting advice of doing long-term
investment at every level and every valuation of the
market. Yes, correctly it can be imagined that even at
20000 index levels they encouraged and gave their invaluable (?)
advice to do long-term investment. Now here, I, being a humble sport, seek
to ask a question that if it was to be long-term invested in
the market of 20000 index levels then what now? (what to do
at present sub 10000 levels?) Now when the over all market
has become half and a majority of individual stocks have declined
more than half then what to do? Is the meaning of their advice
of/on long-term investment is such that: one should/can do ‘long-term
investment’ at any price? Then in that case the investors by
becoming self-analyst would do ‘any time’, this phenomena called
‘long-term investment’, right? They are not going to need any expert, analyst
or fund manager, right?
O.K, O.K., a lot of questions, huhh? But the
aforementioned questions must be popping out inside every
person
desiring to genuinely make ‘long-term investment’.
Alright, let’s try to understand it a bit
systematically.
Question No. (1) Should one at all do Long-Term Investment?
(2) What does ‘Long-Term’ means? What does ‘Long-Term Investment’ means? (3)
How
much duration (months-years) can be said to be
perfectly/reasonable/rightly Long-Term? (4) Is Long-Term Investment Safe? And
(5) Should it (Long-Term Investment) be done at
any time (ignoring
the prevalent situation whether it is a bull-run
or bear-phase?
The answer no (1) Yes, definitely
Long-Term Investment should be done. (2) This is
one important and curiosity-evoking question. After all what is
the meaning of Long-Term Investment? Friends for investment guru Warren Buffett
when it comes to Long-Term it involve holding shares for a lot lot
around ten years or more or even forever. But the market in which Warren
Buffett operates is value, matured and developed market; whereas we operate in
growth and emerging market. So the approach for investing differs although the
underlying basic fundamental principles do not change substantially. Now
basically, the ‘Long-Term’ Investment into equity shares are
contradicted against speculative and trading activities in
shares or also to negate the same and use the equities
as an asset class to
gain better return (interest on capital, money) and the
word long-term is employed for the same. And
this can be assumed literally. Then one thing: Long-Term
investment means investment of money/capital into equity shares
of (good) companies.
As abovementioned the definition of
Long-Term Investment is different for Warren Buffett,
similarly different people have defined it in various manner of
which 3-4 years duration can be commoned-out,
which according to Bill Gross’s Secular Trend Concept ‘long-term’
should be kept at around four years in which we also keep our belief. This
concept of secular trend can be understood ahead as we progress in
our discussion. As per the secular trends minimum 2 years duration
or maximum 3 to 4 years or 5 years the investment into equity shares is held to
qualify it to be a Long-Term Investment or to reap the optimum or maximum
fruits of a long-term investment. But at the same time it should be
pre-cautioned that by saying this it does not mean at all that investment into
equities should not be maintained for more than the said (3-5 years) duration.
But only attempting to mean that such arrangement, such mind set should be
developed so as to exit around the top of the market, and portfolio
should be built in such manner only so as when the bear hammer begins
in the market we do not feel left out to sell stocks at high rates and even after
holding for a long term you could not be able to book profit in them or even
worse—you came into loss in your portfolio! Friends, this is possible
(to enter near bottom and exit near top). It may not be possible for a
fund manager operating thousands of rupees value portfolio to offload all the
holdings but for a small (retail) investor this strategy is possible
and practicable.
So second thing clear that
a duration of minimum 2 years to 4 years
(Secular) should be idle duration of
long-term investment in which the economy and businesses,
their fundamentals get space for germination and
culmination. Now more important question: Is
Long-Term Investment a safe one? At first sight
the question might seem absurd. But friends if this may have been so
simple and straight than we wouldn’t have writing all-this
on subject of Long-Term Investment. The meaning of that is
only that doing Long-Term Investment at any price level and for
no expectancy of definite multifold future (almost confirmed
by empirical evidence) price in the market is not safe. Are
the people invested in 20,000 levels safe today? Forget
about safety, the kind of capital-erosion that has been
taken place quickly prompt us to distrust and
lose confidence on the
whole stock market and it is I guess as straight,
simple and true.
I
would like to dare to add another point in the
middle of this discussion that when there is
the situation of soaring bull-market, penny stocks going on fire,
a majority of stocks’ valuations are dragged
to excessive highs; at that time the possibility/probability
of huge declines or crashes is very high in the markets
and interestingly in fact at such times it is not
desirable/safe to make ‘Long-Term Investment’ into the markets,
instead do short term buy-and-trade trading. Whereas in the kind of period that
we are witnessing recently where markets have
tremendous correction with big crashes, and there are no
possibilities of market or stocks declining further as much and as harshly as
they already have. And ironically at such times earlier mentioned so-called
experts/fund managers and so called star fundamental and
especially technical analysts
throw hasty and panicky suggestions ‘to
exit’ from the market and ‘stay away from the market for now’
which is completely bull-shit, and against our Long-Term Investment
Philosophy/Theory. We want to say on their face that they do not have
any understanding about investing in the stock-market of else they
are interested in knowingly misguiding the investors and probably
have some vested interest of their or others in doing so. Friends, if
there was at all anything to panic (of course there was) then it was
at the 20000 levels (and not now).
[The
same thing may be explained through an illustration: say, the high price of a
stock XYZ LTD. is around 400 and the low price right now is around 40 or say
100, now if the company is good the stock should be purchased and not sold
because the time to sell was at the top (or around) of the bull market which
was probably around say 300 or 400. Moreover, at such situations the so-called
star analysts of TV channels should give only buy calls rather than singing
funeral chimes of ‘exit’ and ‘stop loss’. And suppose that prices declines even
further, to what extent can it decline? Dear! Just look at the tremendous upside,
it is offering! The supposition of prices increasing by 2 to 4 and even to 10
times, fits into our proposed ‘long-term investment theory’ which we are
talking about.]
Point-Wise:
· Entering into market at
(near) bottom and exiting at (near) top should be termed and compared to what a
Long-Term Investment should mean for a common investor.
· To enter and exit at
perfect bottom and top is almost next to impossible. But that is why entering
at and exiting at Potential bottom and Potential top (near/around top and
near/around bottom) is the sign of wise investor/analyst and should be the aim
of true investor which is realistically possible, moreover which we have been
able to prove it as well.
· Sometimes it happens that
markets bottom out but a lot of stocks are not yet bottomed-out meaning there
by that from the bottom markets have recovered but still stocks decline or say
make new lows for example recently what happened in LT, Punj Lloyd, and others.
· No one has been
able to buy at bottom and not one has been able to sell at top
(take it as a general statement) or if
one wants to take it more affirmatively than—If not
at exact bottom then around/near the bottom purchase can be
made and same way If not at exact top then near/around
top selling can be done. But buy and sell for sure.
Now according to our assumptions
and understanding this statement regarding bottom and top is made
famous because at the bottom generally not lakhs and crores of shares
are traded. In the share at every price (at certain definite price)
certain thousands or lakhs shares are transacted. And suppose in XYZ
share a volume of ten lakhs (way too high than
generally averagely transacted) shares is witnessed then even five lakh or
more or all volume occur while buying-selling at bottom price is not
practically possible. Even tough you might have
yourself experienced or heard around saying somebody talking about
him buying at exact low price or his or her stocks selling at the
last highest price.
The
reason we’ve stretched this point so detailed and in
literal language is because
the investors mentality (psychology/belief) is
moulded/tied/pegged in such manner that
‘if wants to buy then buy only at lows’ and ‘if wants to
sell then sell at highs only’, and that’s the reason they are not able to buy
after the price have inched up or repent when the prices have
declined after their buying into. Moreover after declines (after increasing)
still not able to sell at profit and with greed regret to
wish or expect to sell at xyz top/high or ‘around that top/high’
which they’ve seen. Prime facie this whole matter is straight and simple but an
exquisite science of investment psychology (called Behavioural
Finance) and portfolio management strategies is involved in it!
· The problem
with investment in a bear market is that investors do not want (have
mental/psychological anomalies regarding) see their investment value going
down. They want their investment rise only and that is also the reason why
retail investors tend to come down in the market when it is bullish and stay
away of bear market. For e.g. when we suggested stocks to buy to our TARGETpms
clients, they used to call up every day and ask that our suggested stocks are
making 52-weeks every day, so they wondered what to do. And after some days
back they see that the stocks are rising 20-10 % every day/week and have rose
way above our recommendation price and still rising. We hope the lesson is
learnt.
· Being a
bull-market investor is like not at all an investor, you don’t get to get the
kind of returns that a bear market investor gets.
· Being a
bull-market investor is like not at all being “investor”. You don’t deserve to
be at all said to be an “investor at all, let apart a “wise” investor.
More
on Secular Trends and 500-1000% returns without an
exclamation mark behind it:
Famous Bond Guru and once manager of
U.S based world largest
bond management company PIMCO said ‘…longer than a
month, yes; longer than a year, sure; but something less
than forever’, According to him ‘secular’ refers to trends
that require years for their germination and culmination’)
He
also adds that he would like to think in terms of three-to-five years time
spans, because that is all investors can reasonably expect to forecast. For
example, instead of focusing on one-month short-term trends such as housing
starts or inflation rate, investor’s should analyze the secular trends in
demographics that ultimately drive the long term demand for new homes. Other
secular trends include fiscal and monetary policy, trade balances, the strength
or weakness of a nation’s currency, and the evolving political leanings of its
citizens.
With all the respect to Mr. Bill’s view,
we would like to humbly add our view that on
the minimum year band we put 2 and the other end we
put 4 years. We believe and have tested empirically as well as
experimentally the success and proof of it. Another thing is that we
believe stock markets are place to build wealth and not
earn interest alone. By that we mean that
expect maximum from the stock markets, if you are
talking about 15% or 25% annual return, you are making a fun of
equities. We pick and invest in
shares for windfall returns at least beginning with 100%
and, 2 times, 3 times, 5 times and as much as 10 (1000%) to even
20 times (don’t feel the need to put an exclamation mark
behind). We mean: see what others can not see and most importantly can
not believe it (or to put it rightly, are not able to believe).
At the
same time Warren Buffett’s dictum is at the core of our investment strategies that: Rule no. 1.
Do not lose money, and Rule no. 2. Never forget rule no.1.
We
believe in being visionary. Just like
and entrepreneur visions about opportunity in a
business/sector and make a richiss out of it,
a stock investor visions and buy such stocks at such
prices anticipating future prices which help him
make as much times as much the entrepreneur himself does.
“Long-Term
Investment” does not necessarily equals to “fundamental investment”. How? Check
these out.
For us long-term investment equals to wealth-building
activity out of putting money into equities.
But
in the markets such kind of investors’ mind-set is created
and general assumption (conception) is built that
‘Long-Term Investment’ is equals to ‘fundamental investment’ or they
both are one and the same thing. Then question arises that what is
‘fundamental investment’? Actually the right word is ‘Long-Term
Investment’ only. But we unknowingly use the word ‘fundamental
investment’ to mean ‘long-term investment’. Just think,
after all what we want to do is to do ‘long-term investment (into
equities)’ and at times the word ‘fundamental investment’ misguides or only
signifies that we want to do ‘investment in companies that are sound, good,
and whose general reputation is fine’. Now this ‘fundamental
investment’ mind-set intends to ignore or say ignorantly ignores some
of paramount factors apart from what it signifies about
‘good, sound and generally reputed companies’ are factors such as:
1. technical analysis, 2. behavioural finance,
non-conventional fundamental analysis(beyond
conventional interpretation of, financial statements
and business environment) 3. micro economics, 4.
macro-economics, 5. arbitrage, 6. mathematics, 7. statistics,
8. international and domestic finance, credit and
liquidity, 9. international trade, 10. insider information, 11.
various hedge and insurance portfolio models, 12. macro speculative
approaches etc. to name most of them. We would discuss about all of them in
detail and in language as much lucid as possible at some time later.
So next time around
whenever you say ‘fundamental investment, you ask yourself whether
you mean ‘long-term investment’, and if yes, then correct yourself by
replacing the word ‘long-term investment’. Because after all
you want to do ‘long-term investment’ and ‘fundamental
investment’ is just a part of
it.
Can long-term investment also be a kind of
speculative, trading type of investment? Yes.
Yes
friends, according to general assumption and mass understanding,
only intraday trading or investing into penny stocks or
taking delivery of shares for short term i.e.,
short term delivery based trading- is identified with trading and
speculative activity in shares (speculation-opposite of
long-term investment ). But in fact, investments made with an
objective/view of ‘long-term
investment’ can also be (or turn out to be) a
speculative one kind of activity in shares! But how is that?
We will understand it by throwing light at some points as
under:
When
the investment made with investment based (non-speculative) mindset (view), can
be said to be speculative-trading type of act?
1. To invest in ‘any’
good company, at ‘any’ price.
2. Not to determine
the duration of the individual investments according to business sector, buying
price, targeted price. (say minimum two years and more can also be reckoned)
3. Not to determine
the expected return in percentage or expected TARGET (in terms of share price),
is a mighty misattribute.
4. Shares bought for
short-term view but due to decline in prices converted into long-term holdings.
For e.g. in reliance petroleum ltd. in the range of 200-250 similar thing has
happened with a lot of people.
5. Fine, let’s assume
that the long-term investment is made with determining the expected return,
target price, and duration as well; but if the stock is a penny share and/or a
company without any future growth potential, then such kind of ‘so-called or
so-believed’ long-term investment is also classified as a speculative trading
type of activity and not a real long-term
investment.
Point-wise
· Companies are
never good or bad but it’s the price at which one has made investment is good
or bad.
· Investing in a
very good company at a bad price would not earn any benefit and instead
investing in a so-called bad company at good price can ripe returns and wealth.
Just
think, this is not merely a theoretical matter, but from your own experience as
an investor would you find the proofs of this truth.
Honourable
analyst and experts say ‘mandi jaaye aur teji aaye’, and Bull n Bear are just
Cycle of market. Then what’s the Scooter or a Mo-bike…?
‘mandi jaaye aur teji aaye’,
‘Bull n Bear is just the Cycle of
the market’. Such kind of statements and explanations by
reporters, analysts and persons who are
supposed to be stock market guides etc. indeed
misguides investors and abstain them from understanding and
realizing what mistake they are making. If as an investor
you have not bought at low valuation (prices) and offloaded at high,
then for god’s sake what have you done in the market! And same
applies to analysts and experts. All investors (in fact even
non-investing humans as well) know that there in the market there is one Bull
and another is Bear phase, and there is no other third thing!!
In our humble opinion they (analysts/experts)
should be supposed to give answer about two things, (1)
when to buy/sell?, and (2) what to buy/sell? And except these all is mere
crap and distracter or ‘noise’ as we say
in technical language. And this is open to all. The
experts who were overwhelmingly suggesting to buy
a top 5 real estate company at 500, are
now pessimistic and hopeless, and giving ‘stop loss’ and ‘exit’ calls
at 25, and repeat it was Long-Term ‘investing’ kind and not
‘trading’ that they were at that time suggesting.
Huh...Any way hope now you know
what to do when someone say that there is these ‘bull’ n
‘bear’ cycle in the market. Ask when is it? (don’t ask about
Scooter!)
Forced
to do, or a mistake?...but No More.
Everyone
does long-term investment but what happens that they buy any company (or any
‘good’ company) at any price and wait n’ wait n’ wait, they surrender their
capital only to give return in a bull market. They are made to bear the burnt
of a declining painful bear market where for months and years what they do is
only to see their portfolio value eroding with every passing day, only with the
hope that the ‘mandi jaaye, teji aaye’ will save them if not today then
tomorrow and that they will see their buying prices again definitely when bull
market returns. For this there are few considerations that we want to put
forward. (1) when will the bear market end? (2) will your
company/business/sector survive the recession/slowdown? (3) will you not get
panic and sell during the bear phase? (4) will the price you paid come at the
beginning of the next bull market or at the top of it? (5) even you stand to
lose the chance to buy at cheap levels. (6) will you not lose the return during
the bear phase? (7) will you not face financial liquidity crunch?
It’s
not their fault but they are forced/guided (misguided) to do so. i.e. to do
Long-Term investment in bull-run, at high valuations and, hold on in bear phase,
liquidate at loss, or/and not take investment position at cheap and highly
discounted market in time of bear phase.
Only a
more than little “waiting”
The
biggest Wall-Street speculator of early twenties said “In
the stock markets all my life I have learned one
thing that the big money was never made in buying
and selling but in waiting”.
With
our TARGETpms, Just Wait For Two Years And
You Will Experience The Real Fun And Fruits Of Investing In
Equities.
Disclaimer:We
request all the recipients to take this article as a piece of educational and
research insight and enrich their understanding and provoke a thought process
within their mind. The views expressed here are personal and does not
necessarily mean that you should follow them. Market conditions and the
dynamics of economy as well keep on changing. So we suggest taking advice of a
full time professional investments and trading analyst. Although mentions
relating to our TARGET-pms Service has been made at place, this article does
not intend to or was not originated with intentions of promoting or advertising
the said service. The support of everyone is expected.
Note:
To
correlate the situational mentions with the author, please note that this piece
of writing was originated around the end of the month of December 2008 and
beginning of the month of January 2009.
We
would endeavor to produce more of such educational piece of papers in near
future, covering various subjects and aspect of stock markets, investing and
trading. We would feel obliged to have comments and feedback from your side.
Thank you.
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