Don’t be a cry baby. Be a buy baby.

We have a special treat today. Safir has been generous in sharing his thoughts on investing and has written the guest post below .

Safir is an avid investor, an intellectual property lawyer and strategist who enjoys reading, behavioural science and believer in  stocks as a path to wealth. He tweets at @safiranand
I’m writing this note on a Saturday morning, after going through:
A) Another fall in Dow and global markets;
B) Reading countless articles in the papers, on social media and emails on Indian market hitting a few months low;
C) Several predictions on what US fed may do and what impact it will have on Indian markets
D) Much talk of continued FII selling
E) Talks of a “Nifty” level of 7200 odd seeming “certain”

I even read a few more saintly predictions of a manic Monday coming and hence felt even more inclined to jump in and share my simple thoughts.

As we grew up and were in school, a highly successful all girls band called Bangles did a fab song called Manic Monday.

The lyrics of the song go somewhat like this with due copyright in its lyricist:

“It’s just another manic Monday
I wish it were Sunday
‘Cause that’s my fun day
My I don’t have to run day
It’s just another manic Monday”

The relevance of the song is two fold:

1)Life has manic days which give way to fun days

2)Manic days can be fun days if you get the picture right.

I’m not even suggesting nor do I believe there will be any manic Monday. My reference gets a broader perspective on the current state of the Indian markets and the decline seen in the last several days.

While welcoming a much needed correction in many stocks, mostly mid caps and small caps, where most of us invest, I see some key changes in tone of discussions and the worries that seem to surface in most retail investor minds now.

Investing is not as complex if one is strong headed. I treat investing with lots of respect and learning and one thing I repeatedly learn is life resets you most when you find it going against you. For example, someone after a health scare becomes at least initially more careful of his health and tries to inculcate good habits in eating, exercising and even sleeping.

In times of losses of any kind- personal kin or material, people log on greater belief platforms including reading books on medication, balance in life, good learnings etc and for some time at least (if not more) seem to be in greater control of their life.

In investing, they get carried away when stocks and stock markets zoom almost at the risk of taking every rise in stock prices as a given and taking themselves to be messiahs of finance. They buy more and more on every rise forgetting that scrips are nothing but ownership of business pies that are reflected in market sentiments in short duration but which ought to capture intrinsic value of assets.

In typical fashion at the rise of markets, they scout for more reports, more ideas (give me one more multibagger) and participate in the highest buzz through tv, analyst meetings, report sharing etc.

They try and look at a fake (illusionary) crystal ball that shows them as highly successful and as role models of wealth creation to their friends and family and at a place where they literally fast forward their dreams and imagine themselves in a world where they own the best stocks, they beat everyone else and would leave their jobs at the cost of huge profits and wealth. They forget markets are a function of demand and supply, valuations, sentiments beyond their own, errors of judgement and evolving.

When markets correct as they always do, the sentiment turns initially into a doubt. The doubt first surfaces from the worst performing stock in the portfolio that suddenly becomes a loss and was in most cases bought at the instance of a report or suggestion with little work done to verify its credentials. Again much due to the effect of a thought that when most of my scrips do well I must be right in this “impromptu” thought of adding yet another rising star.

The continues fall if it were in a particular stock or set of stocks then indents the mind and they become a worried and uncertain group of thinkers. They connect too much to falls and the mind tells them get out before you lose it all. They stop using their rational hats to see if the stocks they own have a worth, record, potential and of the overall negative frenzy is justified. The effect of loss soon runs through other investments in the portfolio and causes in most cases, yet another blunder- to start encashing the gains. This draws from their mathematical training in school where one negative and one positive cancel each other. It makes them believe that the loss they suffered on a frenzy is now adjusted with a gain not realizing that the decision making in the two trades was not alike.

In such state of the market, they add weightage to track predictions on market lows. The most current ones being to predict that “Nifty” a product they don’t even own can go to say 7200/7300. Hence sell before you make more loss.

I think of some of this as mediocre. Either markets should have a lot of downside-in which case you should not be positive just a few days back and absolutely negative in a week thereafter with no significant global catastrophe or you should just use a virtual remote control to “switch off” some of this unwarranted noise.

Imagine, we are at 7600 odd. If the market was to fall to 7200 odd. First it is not necessary to believe that in this fall your stocks have to fall. Even if they do, is it really worth your investment dream to sell something to avoid a 5 percent decline. By reverse, do you really buy a stock and your dream on it ends when it rises 5 percent ?

We come to the market and read on companies hoping to find stocks that we can buy with our disposable incomes or surpluses and hoping we use them well to beat the best alternate options of investing. Given right now most options (in fact not most, all) have underperformed equity consistently for years, the question to ask is:

Is this fall just like a manic Monday? Can I buy stocks for that series of Sundays when I can bask in the sun and smile at the thought of several years of compounding vs a 5 percent drop.

I can tell you the guy who comes and predicts a Nifty certain level of 7200 or whatever has no clue what a multi bagger is. He is just an attention seeker who has been given a side role in a 3 hour blockbuster Hindi film with one dialogue and he wishes to rehearse it the most so that when he renders it he can grab a few claps. He will soon disappear and not have any career as either an investor or in a lead role. I doubt if he has ever read a book on investing or for that matter ever found one co on his own efforts to buy and reap.

Of course I’m not saying all those who say markets will fall are in the same category. Even the smartest fund managers say it at times but even in such times own stocks and buy more stocks of the companies they like and believe in. And then one day as is always the rule in markets, stocks rise and rise far more than falls and they smile.

For me:

I want to own stocks i like. The liking is on valuations for current buying or holding but also in some companies I have a wish list to own them should they fall. Market falls make my wishes come true and allow me to have “better company”

I see India growing. I see a good commitment on several macro changes that though time consuming and resistant by politics are most certain to play out. I see managements allied to global vision and doing their bit to excel. I see the possibility of several multi bagger returns in many years of secular rise with some months of corrections, which are deserved.

I see investing as a journey and my assessment of my performance having a good innings ahead.

In cricket, a good batsmen does not fish for the ball outside the off stump when he knows it could get him in trouble. In investing a good investor does not chase a stock when he knows it’s buying can lead him to get out. He waits for the bad ball and then scores his runs. In a limited over match when he strikes several scoring shots he sometimes gets carried away to try yet another, even by swinging his bat wildly and usually loses his wicket. His temperament is not connected to the fact that he has been scoring well and moving to victory. He forgets he game is not just his batting but also the bad or good bowling and a dropped catch or an excellent one.

I think we are now in a market where the risk to reward is again favorable to investing. We may make Errors and lose a few percentage points off our portfolios but more likely to see bigger gains. Even if some of your stocks fall, you will have enough time to buy them as time rolls. You are more likely to get rich by upsides rather than to save a 5 percent or whatever downside, even assuming that was timed to perfection.

The data on GDP, IIP, banking clean up, interest rate cycles, base effect of corporate earnings etc encourages me to remain a bull. I see some companies after this correction again at fairly reasonable valuations for now and at attractive valuations based on their history of performance and the discounting of corporate earnings one year forward if not more.

Disclosure: I am invested in markets. I am not an investment consultant nor a Sebi registered analyst. Markets are not my profession but I do find them a passion. Investing should not be done as a roulette and you are advised to consult a wealth manager.

11 replies on “Don’t be a cry baby. Be a buy baby.”

Great Article by A Great Person having True Passion. It cannot be better than this. Would suggest everyone to read this in entirety to gain confidence and to refine thoughts. Looking forward to more write-ups at regular intervals as investing community would always cheer these thoughts. Thanks !!!

“Don’t be a cry baby, be a Buy Baby”
What an apt headline. When I saw the headline, it confused me for a second because the posting came from ‘AlphaIdeas’ site. However, I kept on reading it.
One of the finest article/post of habits of investing, panic, mayhem, herd mentality and winning situations. My belief is that more than 98% people are like that only and that’s why they earn minuscule or not at all. How can a side role actor having only one dialogue in the entire film be important. Who notices him.
What a better commentary then this that if the market falls from 7600 to 7200, it is only 5% fall of Nifty. Heavens are not going to fall if the portfolio valuation falls by 5%.
Nice one. Keep it up. Having more such postings.

He is really a passionate about equities. One needs to be passionate to make wealth grow through equities.

The problem with markets is that there are 2 parts to it, one as Graham explained is the short term voting machine, which is a popularity contest, where we need all the business channels talking confidently about fed rates,support levels and latest IIP no etc. They and most investors miss the second part which is the weighing machine, businesses get weighed and people who invest here buy right and sit tight for years and decades. This is where real money is made but not many have the patience to for wealth creation. This is probably also one reason many investors are better off with mutual funds.

Wonderful.even seasoned investors must read to reaffirm.investing is more of mental then pure finance play.Every day you come to the market as principal of the college and in the evening go back as student.keeping long term.views in place only keeps you standing.

We are into equity investment to make wealth, not few % extra return compared FD.

Good one and think about it… “is it really worth your investment dream to sell something to avoid a 5 percent decline. By reverse, do you really buy a stock and your dream on it ends when it rises 5 percent ?”

Wonderfully written Safir! Very refreshing to read such clear thoughts when people are pressing panic buttons all around on the 5% fall.

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