Tuesday, July 1, 2008

Oversexed guy in a whorehouse.

Warren Buffett once quoted this when Forbes asked him how he was feeling with the market crash in 1974

Well that’s how I am feeling :-). Unfortunately unlike Buffett, I don’t have the spare money to enjoy (and a wife who is watching over my shoulders :-)).

Though everybody is shouting from the rooftops on how the environment is vitiating and how the market can go below 12,000 and then 10,000, I will stick my neck out and say that this is the time to start building on your portfolio.

I m not saying buying stocks like RNRL, Ispat etc just because they have fallen 75 % from the top. They could and most likely will shrink further, But there are a lot of great companies with visible earnings available at mouth watering valuations. I agree that valuations might become even more mouth watering ( what is cheap can become cheaper) but then its tough to catch the top and bottom of the market.

I believe that equities are the best bet to ride out inflation. They might underperform in the short run due to sentiment but companies with low debt on the books and strong cashflow’s will be better positioned to increase marketshare and hence encash as the cycles turn.

One of the advantages of inflation is the fact that replacement costs for companies which have already build capacities in terms of land, plant & machinery etc keeps going up. It provides a natural hedge to the depreciating value of your money as the value of those assets go up. Look at historical costs of putting up a cement plant or building a brand compared to putting up or building one now.
Avoid companies where a lot of the valuation is based on future growth which requires capital. These companies will or have already witnessed serious contraction in their PE ratio as growth tapers off due to lack of capital or that it comes at a high cost.


Anoop said...

It would be great if you could name few companies which are attractive at present and will be a good candidate to buy more on dips. Probably people lime me will benefit from your findings.


Ninad Kunder said...


To be honest it is important to discover your investing styles for me to comment. I look at stocks from a relatively longer term horizon so my suggestions might be not compatible with your investment outlook.

I would anyway in a subsequent post put across my broad take on a few sectors and maybe specifics in terms of stocks.

Also in my previous post I had spoken about Abbott. With the SEBI approval coming through the stock has a assured 7% return in a 1 & 1/2 month period provided that there is no downside post the buyback from the current price.


Mahendra Naik said...

Hi Ninad,

I agree with your views that equity is the best hedge against inflation. Another factor for equity is that companies that have the flexibility to raise prices citing input costs, do not lower prices at the same rate when commodities cool off. e.g. IT cos raised rates when Re rose against $, I doubt they have shown the same alacrity in reducing them now. If such cos can be identified it would be a bargain in the current scenario.

Ninad Kunder said...

Hi Mahendra

You are right on that count. IT is a good example. Also in times like this most good quality managements will start tightening their belts and reduce the inefficiences and cost padding up that builds up in the system.

Companies with strong balance sheets and cash generating abilities with good management in place will deliver superior returns. And I m not necessarily speaking of only Pharma, FMCG or IT companies.


Inquisitive Stranger said...

Ninad, Again very nicely put, i wont be telling this anymore cause you really write well, so from now on just know default the writing part if i left a note. Now comming to the point i wanted to say, i feel miserable reading so far, thats cause when the market fell i had some good cash with me and rather than buying i gave the cash away in clearing one of my mortgagee loan, i didn't pay completely but it did reduce the amount of interest i was paying, if i would have bought few stock at that time i would have cleared my loan in a short.

But past is past.

One question i have for you is why dont you give a range for the stocks which you recommend. I understand that you have mentioned about our own style, what if the style is same (long term).

Ninad Kunder said...

Hi Inq Stranger


the way i look at missed opportunities is tution fees that we pay in the process. So provided that one learns thru the process, its ok to miss opportunities along the way.

On the range of stocks to be honest its fairly dynamic in terms of the special situations that I invest in. Considering that there are periods when i have a break on the blog, it doesnt make sense putting put the list.