Value Investing and Timing

Value investing and timing. In a discussion on prospects for Psu banks among a few friends, one of the points made was that SBI should be part of a portfolio and that there was no way it can be ignored. I don’t think anyone is going to disagree with that. After all, it is the largest bank in the country and the govt business is assured business. There is hardly any float and big chunks are owned by big players (aside from the govt of course). There are all kinds of positives for the stock. But then, stock has doubled from a low of 150 to nearly 300 levels now. So, it brings to question whether Sbi is worthwhile at current prices. This was hotly debated and no particular conclusion was reached, except agreeing that there was value for sure.

But in my mind, it raised another question altogether. While some stocks may be great to own because of certain facts or aspects, the bigger point is, will their prices rise? After all, we are investing in equity for capital gains and not for dividends alone, right? The yield is so low that the latter doesn’t make sense anyway. It can be argued that, eventually, good stocks will rise and reward. However, the word “eventually” is actually a bit scary! What does it really mean, how is it defined, is there any standardization for it? Hardly. Take for example the fact that market majors like Tata Steel, Infy, Bharti, Wipro etc.etc. have all given terrible returns in the past 10 years. Now, I would think, ten years will certainly fall in the category of “eventually”. But if the acknowledged blue chips of the market won’t give us good returns (above stocks, among others, had less than savings bank interest rate of return!), then how do we plan?

As a money manager (which each of us are, at least of our own funds), our only goal is to maximize the returns on it. For that, we have to address the question of not just owning quality but perhaps create a new definition of ‘quality- within prescribed time’. In a blog I wrote last week (see The Multibagger Fascination) I mentioned about the example of Force Motors. How it delivered in a matter of months what it had not done in years. These kinds of moves are held out as the reason for not timing the market. But unless you assume that everyone has endless patience and limitless time for returns, it won’t work. When I invest, it is natural for me to expect that I shall have a payback in a reasonable time. Now, what is that word reasonable mean is subject to that individual.

So I feel it is important, in investing, to not only define what kind of stocks that you shall own but also to define by when they need to deliver. Unless we can do that, a planned future target corpus may be difficult to create. If you tell a budding value investor that he should not look at his investment for next 30 years. I think much of their enthusiasm will be dampened. People in their 30s want their money by the time they hit their 40s. This cannot happen if the prices of the stock that they own don’t move across the next 5-10 years. Assuming that one is not going to have a constant list for the next ten years, it may become essential to look beyond just quality and address the important issue of time. Being unable to do that cannot be an excuse. Neither can it be a cover by saying it is not relevant. In my view it is most relevant for most people. I count myself among the most. If you are outside of this group, well, good luck. I would rather make the money with my efforts and skill within the time of my choosing.

This is not about instant gratification that traders suffer from. It is about being realistic with what I want and what I can do. Reconciling the two is more important investing and trading .

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