Learning from the events of June 4,2024
Volatility is a Offer Valid till Stock Last sale, be ready to act when the opportunity shows up and some updates on our PMS.
Hi All,
Its been a while since I shared something with you guys. The past quarter has been a bit busy with the scaling-up of Latent Advisors PMS, I along with my co-founder have been working hard to find good investment ideas at reasonable valuation (phew! its tougher to invest for others than investing for oneself) as well as interacting with fellow investors (both who are investing by themselves as well as those who are investing through us).
While interacting with our investors, we have been clear with them that given the markets (esp. the mid and small caps) looked over-heated, they should expect the deployment would be slow and steady, which also means that we are going to be sitting on cash (earning the 6-7%’s attractive yield :) ) but we would be ready to deploy when the opportunity strikes.
We didn’t had to wait long! Come June 3rd markets were going gaga over the NDA winning the elections with a strong mandate and come 4th, the picture changed quite literally, wherein people were trying to fit the maths how INDIA can form the government. This 180 degree change in the situation, led to the market falling upto 8% on an intra-day basis.. and we saw companies which are majorly export oriented also (and therefore insulated from the effects of who is at the center) also falling in sympathy and it didn’t make sense (why would a business say in the US/Europe stop buying just coz INDIA bloc is in power and not the NDA) and we therefore added to our and our investor’s kitty few companies which a) either were not majorly affected by the govt. in power OR b) have a strong tailwind supporting them.
Few things that helped us make the decision on buying in this time of uncertainty:
Knowing that Stock Price <> Business: A good business can keep growing and yet the price may not reflect/move OR a bad business may keep destroying its financials and yet go-up. Therefore, the price movements don’t necessarily reflect what the business is doing; focus on the business and let the price action follow (best situation to be in, rather than price action precedes the business, and no further returns are realized)
Volatility is a VALID TILL OFFER LAST SALE: As the information age has gathered pace, the process of information dissemination has quickened and therefore the half-life of “shocks” have become shorter and shorter, which means that investors need to be ready Lock Stock and Barrel when volatility presents itself, because it can disappear as quickly as it appeared. OR as Thakur had said in Sholay!!!!
Learnings from the election day events:
Cash Equivalents <> CASH: When we started our PMS and we were just building up on the investment ideas (we still are building our ideas), me and my co-founder kept having discussions on how much of cash should we keep, and I trying to extract/optimize for the last ounce of returns for the investors, pushed for 100% of available cash, why not, if something comes we would sell the liquid funds and buy the next day; but my co-founder pushed for keeping atleast 10% cash (read it as bank balance sitting in current account, not earning any interest) so that when the opportunity presents itself we are not running helter-skelter trying to fund money to buy. Guess experience counts, coz if on the election day we had been sitting on liquid funds, we would not have been able to buy into our ideas during the limited time sale.
Election results don’t matter: Post the big shock of not a simple majority for BJP, what happened to the markets, they recovered within a matter of days and started on its merry way of making life-time highs. AND what did the market experts do, started to build co-relations/narratives on why the markets are going up (“In India, biggest reforms have happened when collation govt was in place”, “Modi will now take into inputs for other stakeholder”, “strong opposition is good for the country and the economy”), basically the pricing action drive the narrative, no one knows what or how things would evolve, so stay nimble and read-out what the screen is telling and at least try to sound intelligent. The markets have a mind of their own and will chart their path and election, budgets etc. are just short term noise/blips.
To the readers of my substack, I am sharing the two newsletters we shared with our stakeholder, to share what’s keeping me occupied over the last quarter:
NOTE: The markets might suddenly fall tomorrow and all of this may look like gyaan, but hopefully things turn-out for the better the day after tomorrow :)
Disclaimer: The views are personal and don’t necessarily reflect the views of Latent Advisors LLP. The stocks and ideas mentioned should not be taken as an investment advice. Please talk to your financial advisor before investing or drop in a mail to me at divyansh@latentadvisors.com.