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What’s the market all about – III?

The stock knows that I bought it, and it decides, ‘Mohnish is done. Now let’s go down.’

– Mohnish Pabrai

. continuing our discussion from earlier post, there are two aspects to a stock market. Macro and Micro. Simply put, Macro depends on what’s happening around the world. Let’s say US Federal bank hikes interest rate or turns hawkish, India’s BSE dives down, or let’s say Ukraine-Russia conflict is causing oil prices to go up thus driving the INR valuation down – this might have a significant effect on the index. There are 100s of macro factors to consider. Just like Butterfly effect, Tsunami in one corner of the world can have effects on the other corner (Yes pun intended when I write corner in a globe).

The next aspect is micro – I guess this interests Traders and investors alike. Traders – who are interested in technical analysis and sit infront of a computer screen for the entire market duration trying to buy/sell at some signals. Investors – who like to read balance sheets/PL statements and come up with complex metrics – PE ratio, PEG ratio, Yield etc.

There are people I know of who dismiss one or even both the aspects when putting money in the market. Question is, what should we do? Well I do have a methodology that has helped me in earning decent profit in the market. Just look for a good business that can even stand in face of a downturn. Examples? – Apple, Walmart, Costco etc. They are not easy to replicate and have a super wide moat.

Now that I have explained the aspects, here is a recommendation I would like to give if anyone is interested in investing today. Try look into Micron (MU)

The PE alone looks very favorable. There are plenty of downwinds in the short time(till end of the year). So if you can grab one < 45, just go for it. https://www.aztechcouncil.org/giant-us-chipmaker-eyes-arizona-for-40-billion-plus-plant/

If we review the last year of earnings growth, the company posted a terrific increase of 50%. The latest three year period has also seen an excellent 39% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Let’s have a follow up for this post as well and discuss more. Feel free to post any comments or questions.

3. What’s the market all about – II?

“Listening to uninformed people is worse than having no answers at all.”
― Ray Dalio, Principles: Life and Work

.. continuing our discussion from earlier post, Below is the history of BSE sensex.

2005 sep 8 – 8,000

2007 sep 17 – 16,000

2008 Jan 10 – 21,206

2012 Sep 12 – 18,464

2017 June 16 – 30,520

2022 Jan 14 – 61,220

I must admit – I am a little jealous looking at this history. I graduated from engineering in 2010 and started my job in 2011. All I did was doing stock research, fall in to the traps of futures/options etc when all I HAD to do was put money in BSE index and it would have QUADRUPLED. Can you believe it? Quadruple. Only if I had listened to the right people.

Back to the discussion. BSE index shows the weighted-net average of 30 stocks. So what about the remaining 4000-odd stocks listed in the exchange? It turns out that, if the front wheel of a vehicle has moved it also means the rear wheel has moved as well. So it’s a good notion to think that GOOD stocks that are not part of the index has moved up as well. Don’t believe me? Look at the below chart.

So that’s conclusion 1 – If the index has moved up, it means other GOOD REASONABLE businesses have moved up as well.

Okay but how did the stock price go up so much? Of course there were people to buy those shares. Are you serious in saying a third world country like India has affluent people who are able to drive a stock price to this extent? Well Yes and No. YES because the term “Third world country” does not have to do anything with poverty or even economy. So YES, India is a third world country and NO because not only domestic investors but Foreign institutional investors (FII) came in with their money since they believe in India’s growth story. What you or I or politicians depict about India is another story altogether.

India’s economic policy is a very useful one – FII’s who bring in money in form of Dollars, Euros, GBPs, Yens etc are always looking for liquidity – they should be able to pull out money as well whenever they need.

Bringing it all together, Safety due to market growth, Liquidity due to economic and political stability is what keeps the market buoyant.

Let’s have a follow up for this post as well and discuss more. Feel free to post any comments or questions.

2. What’s the market all about – I?

“Being too far ahead of your time is indistinguishable from being wrong.” So”
― Howard Marks, The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor

If I tell you there is a relationship between the stock market and the cost of a kilo of rice on that day, you probably would not believe me. There is a place in India named Rameswaram – the birthplace of esteemed APJ where a weather report and forecast center is located. I used to visit that place when I was young just to watch the cyclone warning cage.

The cage is raised to different numbers to indicate the possibility/severity of a storm around the coastal regions. Based on that, fishermen go to fish on the particular day. Now, have I actually seen the vortex? Nope. Have I been anywhere near the storm to get an idea of what it looks like? Nope. All I know is, how severe the storm is based on the cyclone warning cage.

Similarly, stock market can be a very accurate indicator of how healthy the economy is. Don’t believe me? Check the history of BSE/NSE or any reputed index for the last 6 months/1 year time frame and get an idea of whether it has been going up or falling down.

If the index has been surging, it’s possible that the inflation and your cost of living has increased as well. Cost of living – rent, fuel prices, food prices, utilities etc. What if the index has been depressed? Well the opposite happens. Job cuts, layoffs, falling rents, food pricing. So, reducing food costs/inflation is a good thing right? It’s a double edged sword really. Let’s get into this in detail in future blog. Post me a comment if you are interested in this discussion.

According to Swedish professor Gustav Cassel, The Stock Exchange has often been represented as an astonishingly sensitive barometer, which indicates beforehand what is going to happen in economic life. We will discuss about Market cycles by Howard Marks in another blog.

The conclusion here is, even if you are not an investor or have no idea of what stock market mumbo jumbo is, do track the status of the stock market (NASDAQ, SP500, DJIA) or (BSE, NSE) for the past 6 months before taking up a new purchase. Let’s say you are planning to buy a car or splurge in that summer vacation when the stock market is down hill, it’s better to postpone it for sometime. Ironically, the best time to invest in the market is in down market as well.

I am planning to spend few more posts on this topic. Hope this is useful for you fellow learner.

Feel free to post any question/comments.

1. Tabula Rasa

Alright. It’s been seven years since I wrote a post in this blog. Today logged in and saw all the overwhelming comments on my earlier Buddha post. I am very grateful.

Just like any other techie, I switched to a new hobby which is investing. I have been dabbling in investing over past 5 years with serious investing in the past 2-3 years. Over the past year, I have been thinking of some form of blog/vlogging. Not sure how or even where to get started as I tend to be really awkward around cameras.

For now, I will probably use this WordPress blog to share my thoughts. At some point, I may consider porting it to a new platform.

Let me first say this, Over the past 5 years, I have tried everything. Stocks, bonds, options, ETFs, leverage ETFs, Mutual funds, CDOs, crypto, NFTs. I can whole heartedly admit that the returns from an index fund beats the crap out of all the aforementioned ones. So if you are looking for investment advice, here is one – put money in an index fund every month, keep your head down, work hard and after 5 years you can notice the effect of compounding and then you can start a blog just like mine.

Then why don’t people do it – That’s a topic for another blog post altogether. We can get to that.

Please feel free to post your comments or ask any questions you may have. That will surely motivate me to write more. I am really not looking to earn any money here. It’s just dissemination of the little I know to a larger crowd.

To end this, I quote Agent Kay from my favorite Men in Black – “A person is smart. People are dumb, panicky dangerous animals and you know it. Fifteen hundred years ago everybody knew the Earth was the center of the universe. Five hundred years ago, everybody knew the Earth was flat, and fifteen minutes ago, you knew that humans were alone on this planet. Imagine what you’ll know tomorrow”.

Note: I am super new to blogging. Feel free to throw any tips/tricks to writing a blog as well.

– Your friendly neighbor-hood investor