Saturday, December 19, 2009

The Market is tired

Another year is drawing to a close. It is time to rest a bit and so is it for the indexes. They have been running tirelessly for long. There are a few facets that will lend itself to the behavior of the index. It is the year end for many FIIs that have book closures and will close their positions, January RBI policy announcements are expected to tighten liquidity to rein in inflation, many IPOs are sucking up liquidity from secondary markets. The markets are oversold and running out of steam. This is seen in the leading stocks from their valuations. It is difficult to predict exactly when, but there is good certainty that the markets will correct. This will provide an opportunity for all of us to buy assets at a good discount to their value. So be in cash and hold on to Gold.

I've been getting a lot of people asking me when I'll sell my gold...

First; I have to tell you it is much, much too early to focus on this. This is a time when very few people have gold, many more countries will move their reserves from dollar to Gold and you will see this happening soon. The dollar will loose its old charm as the pressure mounts on US’s foreign creditors to look at other avenues.

To be a successful investor, you must think independently. But I'm only human, so it feels great to find a stock you believe is an excellent company with a first-class management, recommend it to your readers, remind everyone when it gets cheap, defend it against numerous critics... and then watch it deliver disproportional returns. As Buffett doesn't buy unless an investment fits into the four filters he used for decades.

• An understandable, first-class business

• A sustainable competitive advantage

• An able and trustworthy management

• A bargain price

I am right now studying a company in renewable energy. They have had recent setbacks due to inappropriate management decisions in the past. True value buys emerge during special market conditions, bad business decisions, extraordinary industry happenings and extreme pessimism. But if you go by the filters, you will be able to separate the wheat from the chaff. I am reminded of the story of Sudip Dutta who moved to Mumbai in 1988 from small town of Durgapur after his father passed away and he could not support the family. He started working as a packing assistant earning Rs. 15 per day and twenty years later, today he is the largest aluminium foil maker with business over Rs 500 crores. India is full of such entrepreneurial spirit and Indians can take on the world.

Things that you'd think are impossible could be happening with regularity in the next decade or so. Let us just sit back and watch, and wait. As they say, patience rewards the intelligent investor.

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