Curious Happenings Around The Markets
Every now and then I get mystified by things that happen in the market. Many of these don’t look logical but they happen anyway. One of the things that is most striking these days is Value investing. I have written other blogs on this topic but I take it up in this one as it appears to be, currently, an anomaly. By definition, value investing should happen when the markets are down deep. But here we have people attending Berkshire AGMs and talking about Buffetology all the time, we have only these acolytes being featured on TV most of the time, we have courses on value investing everywhere and most of them are going full etc. The funny thing is, index is trading at its highest ever! How come then value investing has suddenly become a fad? Nothing wrong with it- except that I see one problem. When markets are bullish, newer entrants come in. Now, if all they hear, read or see about them is value investing, it is natural for them to assume that this is the way to go. But since they don’t have sufficient idea of how to do it, they will invest at current levels into stocks they believe are at value levels! Obviously, not much of value is available at 31000 on the Sensex. So the newbies are going to take a big hit and what is worse is that they are going to learn a wrong lesson!
The other intriguing aspect of the current market is the dichotomy between the Nifty and the rest of the stocks. While the Nifty refuses to react more than a token amount, stocks have seen a hit of 8 to 25% across the board. People are confused about which one to look at? They track markets thru the Nifty even as the buy into individual stocks (mostly mid and small caps). Efforts of the year so far have been rendered almost null in the recent sharp pullback in stocks! The sense of frustration can be quite a difficulty at such times. Worse, having exited from their longs, it is now becoming even more difficult for many to get back into the game as the markets have gone even higher! It is at such times that conspiracy theories about operators and their scheming begin to surface, making matters even worse!
Like, I am wondering what took Capital International so long to move out of RCom? They sold their entire stake at the current lows around 18! I recall about 4 years ago when that Canadian research outfit Veritas came out with a report saying RCom should go to 20 (it was well above 100 back then I think) and what a furore it caused. If I recall correctly, they were even taken to court by someone (Indiabulls?) and ran into a spot of trouble. But over the past years RCom has done nothing but decline steadily. Capital is a large fund and I am sure they had the means to check. But it appears that there was an unwillingness to accept that things were going bad. Prices were clearly indicating that exits were going on all the time. I am just surprised that it took so long for someone so large to recognise that the stock was a lemon! Maybe this sale will ring in the bottom?
Like, why is everyone on a bearish wicket and trying to find how much the market will fall when it gets into a reaction? The cliché of the market is that so long as people expect a reaction it will never come and this market is proving that day after day. From around 9000 levels people have been looking for reaction and shorting. It is now 9600. Look at how much has been lost –only out of a focus on something that was never there! Amazing.
Like, why is everyone looking for value plays in Pharma? Almost no one seems to have courage to say openly that these stocks have been duds for the past year or more and there is no sense in going near them till the decline stops. But no. Pharma is one of the haloed cows of the market and how can one call for a decline? Just not done! I had written a note back in early Jan 2017 asking whether pharma stocks can keep falling all thru 2017 and given a comparison to IT stocks from 1999-2000 where they saw a fall of 90% from the highs, even as they continued to churn out solid profits! Why should something like that not happen to Pharma? I am not saying here that it is going to but if you don’t carry the thought of that possibility you will always be looking for value! Someone posted a view given by Rakesh Jhunjhunwala in 2016 saying that pharma was available at lottery ticket prices. Well most stocks are down at least 20-30% since then! Imagine, if the best investor of the market can get it so wrong, where does it leave the rest of us? He can afford being wrong. Can we? As long as earnings compression is going on in pharma majors, where is the scope for a rise? Trading bounces are the only thing that may occur. I seriously doubt whether any of these pharma stocks are at value currently and won’t be surprised if they all continue to decline substantially more from even current levels!
The list can go on and on. But still scratching my head on some of these!