Sunday, February 14, 2010

Is it a right time to invest?

The markets have turned volatile and have corrected a bit, this is something that we always expected. The question now is, is that all or should I wait for more corrections before I invest. It is impossible to time the market. As someone who has been investing for many years now would realise, it is nerve wrecking to follow the index on a daily basis. I had given it up many years ago after my initial brush with trading. A trader’s life is full of highs and lows and is more like an addiction. There investment life is also relatively shorter. Thankfully I had given up this limited career long ago and entered the beautiful world of investing like a true and intelligent investor. It is about investing in a company as if you are buying its business story. If you investing in say an infrastructure company, you are doing so since you believe in the infrastructure prospects of the business. You do so because you believe there is a lot more of roads and bridges that need to be built and your company can profit from it. This is called Business perspective investing. This is relatively relaxing experience though it needs a lot of mental discipline and understanding. For such an investor, the interim losses are not a cause for worry but would be an opportunity to invest further. We follow the company financials regularly and see if the earnings and other parameters grow regularly. Look at earnings as the return from an investment made in the company.

For a long terms investor, it would make sense to invest regularly irrespective of the way index moves. Invest regularly and similar amounts. Subject to of course valuations of the price and the company identification parameters. Not everything is reflected in balance sheet. We need to deepen our contacts and get a insider view of companies. It will pay well to look for low PE companies that conform to select criteria and hold them for a period of 2 to 3 years. The next decade will see multi baggers from sectors like infrastructure and capital goods. There are also value picks emerging in education sectors. The markets have corrected quite a bit and more of this I am expecting as more bad news emerge. The European crisis is already being spoken about. Next would be Japan and US which are in deep red. Lets us prepare for action by investing in small amounts and continuing to do it as the market gets into more buying zone as I would like to call it. Beware of the real estate mafia still as a lot of illegal and launder money is lying there. I would avoid companies where customers buy purely based on price and have nothing else to offer like say a brand, or an innovation, a secret formula or IP. Recently I was looking at a company and was amazed to see the kind of innovative products they offer. Infact they do not restrict their manufacturing to any specific sector but specialise in innovation and making products that simplify our lives in multiple ways. They make products from automotive supplies to stationery to electronics to healthcare. These are the kind of companies I look to invest in as they have as warren calls them Consumer Monopoly. They have the power to price their products and also retain their earnings. But then it makes sense only to buy it at the right price. One parameter I look at it is the earnings yield.

The next event market looks forward is the budget. There is pressure on government to pull the plug on easy money and remove stimulus over time. Easy money will have to stop soon as the debt burden across all governments by dolling out such subsidies will become insurmountable. These will be action packed days and we are going to see prolonged times before a convincing recovery. Time to invest. And Investors seeking Knowledge will reap huge profits.

With Best regards,

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