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The Curse of a Bull Market

“Vishal, since the market is up so much over the past two years, I’m looking for cheap stocks and sectors that have been left behind, even if they are average businesses,” a value investor friend Ravi told me this as we met for lunch last weekend.

“Why?” I asked.

“Because it’s almost impossible to find value among good quality companies…your so-called moat businesses. And I am a true blue value investor you see.”

“Oh no,” I told Ravi. “That is a dangerous thing to do.”

I understood what Ravi was hoping to do. It also sounded logical i.e., to identify and buy stocks that remain cheap in a market where most businesses are quoting at high valuations.

But sensible investing doesn’t work that way.

“There is a big difference between ‘cheapness’ and ‘value’, Ravi.”

“Why do you say that, Vishal?”

“Think about stocks from the real estate and infrastructure sector as an example,” I said. “Since March of 2009, which was the bottom of last major stock market crash, shares of companies like DLF, Suzlon, GMR Infra, and JP Associates are down between 13% and 61%. Note that I am talking about these returns from the bottom of 2009, when almost everything was cheap.

And we all know what has happened to these stocks from the peak of January 2008. These are down anywhere between 90% and 96%.

“Now compare these with a few high quality businesses (as in 2008) like Asian Paints, Pidilite, and Titan. If you had owned them at the peak of January 2008 (note again, at the peak), and you held on to them till today, you would have earned CAGR of between 19% and 29%.

“And we all know what has happened to these stocks from the bottom of March 2009. These are up anywhere between CAGR of 42% and 50%.

“In short, if you had bought bad businesses in March 2009 when they were cheap, you would have been sitting on losses even six years later. On the other hand, if you had bought or held high quality businesses when then were seemingly expensive in January 2008, you would have still made big gains over the years.”

“So are you advising me to buy high quality businesses, even if they are expensively valued?” Ravi broke his silence.

“No, not at all Ravi. Far from that! Consider what Warren Buffett has said so often –

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

“And why? Well, here is Buffett again –

Time is the friend of the wonderful company, the enemy of the mediocre.

“The message is simple, Ravi. Avoid the mistake of buying ordinary companies just because they are trading cheap and you have nothing to buy among high-quality businesses.

“Patience, as I understand, is required not just after you buy a stock, but also before you buy it.

“Look Ravi, what we have seen over the past two years has been an amazing bull run in stocks. If a stock did not rise in this run up, you must investigate why it has been so. Maybe something is wrong with the business. Maybe it is cheap now for a reason.”

Ravi was listening carefully, and so I continued.

“Most people, like I used to do earlier, think that it’s safer to buy a cheap stock – one that didn’t participate in the big run. They think that there’s some safety there. They think that it can’t fall as much as the ones that ran up, simply because it doesn’t have as far to fall.

But having been an investor in the markets for almost 12 years now, and seeing others investors who have done really well over the years, I know this isn’t how it works. Buying the previous underperformers that are trading cheap doesn’t provide you any protection against market crash, or a potential for reasonable return in the future.

“Some stocks that did not participate in the past run up may do well in the future, but it’s because their underlying businesses do well and not because these stocks were cheap at the start of their turnaround.

“Once the market has run up like it has, the temptation is to look for deals among ordinary companies. Resist that temptation, Ravi. Trust me, it doesn’t work.

“Learning this lesson was hard for me. I hurt myself a few times looking for cheap stocks after bull runs before I got it. But it doesn’t have to be hard lesson for learn for you. Now you know it. Don’t let yourself get burned by cheap stocks, too. Focus on business quality and then wait for the right valuations for them, even if you have to wait for some time.

“But how long should I wait Vishal?” Ravi asked.

Well, wait till you find high quality stocks worthy of buying, Ravi. As Charlie Munger says –

It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.

“It’s the curse of the bull market that leads people to give up on their sound investment philosophy and become impatient (especially because ‘others’ are making money fast). But take my word – this stuff doesn’t work in investing. It has never worked.

“Beware this curse of a bull market that makes you forget the risk of losing money, and leads you to assume that making money in stocks is easy.

“And with that, let’s begin our lunch,” I told Ravi, “I am very hungry, so let’s talk of good food now and not investing.”

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.


  1. nice! very well said indeed!!
    I am trying to learn to wait in a bull market. Finally took out 20% of portfolio rather than flipping between medium conviction ideas.
    ~thanks for the post

  2. Vishal,
    Great article
    Most of us develop insights(the ones you talked about) with own experience or looking at others. How come these Mungers and Buffets developed these with out much self exp of failures?


    • Thanks Eeshwar!

      Well, Munger and Buffett had their own share of investment mistakes that must have taught them lessons. But without doubt, given the learning machines they are, they have learned more from seeing others make mistakes. And that’s the idea for us as well. Regards.

  3. Thanks for the timely reminder Vishal.. I just sorted through a list of so called cheap stocks over the weekend. This post was a welcome wake up call.


    • Thank you Vishal.
      Even though we have learnt these things, somewhere we tend to loose our patience and keep getting into the same mess. Isn’t Bull Run a good opportunity to get rid of some mediocre companies and be cash ready?

      • Thanks Samir. You must not wait for a bull market to cover up on your past sins (of buying mediocre companies). And the bigger problem is when people give bull market as an excuse to commit more sins, and believe that whatever they would buy would turn our great returns. In short, avoid mediocre businesses in good or bad markets. Regards.

    • Great to know that Lloyd. Thanks!

  4. rakesh rathod says:

    Thanks vishal to keep pushing and reminding us everytime we loose it to the next big what moments.
    Its easier said than done.Better to wait before buying rather than waiting for your costs to recover after buying.
    Making it a point to not to miss a single post ,especially after meeting you on network fp

  5. Raghav Kheria says:

    Hi Vishal,

    You are quite right and it is generally easier to identify a good quality business but for the average investor it much harder to identify the right price. Yes there are tools like DCF etc but these are all extremely subjective and as good as the assumptions one make. Is it really possible to forecast cash flows 10 or 20 years down the line? We all know what investors like Warren Buffet and Howard Marks think about forecasting. Can you shed more light on how to identify the right price to enter a stock?

  6. Rakesh Mahajan says:

    Good article for a new person entering into market….

  7. Dear Vishal,

    Very good post. I have a same problem as i can not seat on cash while bull market and keep looking for a next investment idea for me and the problem is if i find something instead of delaying gratification i am jumping into it. Even i have noticed from my behavior that when i start looking into company that i cheap for any reason and not even heard a name of it, that is a peak time in the bull market. This time when market was at 8700-9000 i was doing the same thing but learned to resist myself from buying into it but on the other side i bought a quality stock at a high valuations- same problem as can’t seat on the cash.

    Keep reminding same kind of post even in the bull market.



  8. Really sending us back to the basics. Am interesting observation is that I always felt that the ‘wonderful price’ quote was used to describe a bad company being bought at a high price. You have used it to say a low price here!!!

  9. Very well written ,the answer to Ravi is to find value generators and check ehy they didnt participate in last Bull run.Most value unlock opporunity could be unerathed there.
    Hence the bottomline is simple yet most powerful,” find a value generator business with increasing ROCE, able managment and wait for the opprtunity”

    Thanx for sharing Vishal.


  10. Ramamurthy says:

    You and your commentators are all talking vaguely about general principals of stock investing.I did not see even a single case of any one including you who has talked about a specific stock.Every one talks of Buffet/Munger.Has any one knows about the mistakes they have made and what are those stocks,why they purchased and why they failed.You also I think may have made many mistakes. Own up and let us know the reasons, instead of all these loud talks.Recently Rakesh Jhunjunwala is reported to have bought into Indigo stocks..What has made him to buy into a sector well known for its huge losses.Is it to lure people like us to buy so that he can make a quiet exit making sizable profits.

    • Thanks for your comment, Mr. Ramamurthy. Well, I gave some real-life examples in the post itself. I won’t want to comment here on the mistakes Buffett and Munger have made but they have disclosed and articulated them very well at several times. Regards.

  11. Sam from The Nude Investor says:

    The key I have found is to buy quality companies in sectors that are out of favor. There’s always a sector out of favor too – just look a the resources/hard commodities space right now – all the indices are down 50% – 80% from their peaks around the GFC.

    Massive deleveraging going on there with global giants like Glencore cutting production etc. Just a hint, but take a look at some quality mid caps in the space if you’re looking for “value”.


  12. Wonderfully articulated. I think this is problem for majority of individual investors. Sometimes it good to sit on cash and wait before you deliver your punch.
    If a debt free company is consistently generating free cash flow near to its net profits and have negligible capex requirements, have good roe, roic numbers but no growth would it be categorized as great business or mediocre business?

    • Thanks Sunil! Well, the questions to answer are – What has been the management’s capital allocation history? What plans do they have with the current horde of cash of the if the business provides no/less opportunity to reinvest? Regards.

  13. Paari Elangoval says:

    Dear Vishal,
    “If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that…”.
    What an insight? Many times I used to wonder how I am able to wait patiently for the market to come down while others weren’t. Now I realise that it is due to my deferred-gratification gene!.
    Very good article. Thank you.

  14. Sanjiv Gupta says:

    Admire your commitment and deep research. Sharing your knowledge over web deserves deep appreciation.
    I make sure to read and save all your articles. They will go a long way in shaping my investment strategy.
    Thanks a lot.
    When do you plan to hold a Safal-Tribe-interaction in Chandigarh. We look forward.

  15. Again the Best article . If someone (I) is unable to find Fair Value but able to find Good business then , Buying in tranche is advisable ?

  16. I am small time invester.some of the share are good picks like kotak mah and axia bank which i purchased at the public issue.but there are dud stocks like suzlon and opto circuits wherein i made huge losses and burned my hands.i wish i had the oppurtunities to have gone through an article like this one dear i have retired should i get out of the stocks and pull out my money feom stocks?

  17. Nice post, Most institutional fund managers lack the gene and/or the mandate to wait.

  18. Excellent as always…

  19. R K Chandrashekar says:

    Dear Vishal
    Timely advice and you are spot on. Contrary to popular belief, more money is made in a bear market than in a bull market. It saddens me to see the all round optimism and euphoria in a bull market, while it should have been the other way around. I also believe that the damage/gain would be far less buying a wonderful business at slightly expensive valuation, than a gruesome business at cheap valuations.

  20. Needhi mittal says:

    Hi Vishal,
    Can you please explain what exactly midiocre businesses are?Here I am comparing two businesses one Panasonic Energy with Kwality Ltd. ,one whose past history of capital allocation is very good ,debt free and everything one should look for a good company and here is one companywhich is highly debt ridden and bad past .Sure I am not suggesting one should invest in such debt ridden company but any company even if their past record is very good but has high investment plans for future but not suggesting the clear road map of capital allocation ,is it not equally risky.

    Am I comparing apple with orange?:)
    actually I am just trying to compare their risks with clear contrasting effect.

    Kindly bear me if now I have started irritating you.

    • Hi Needhi, I would be more comfortable going with a business that has a proven record of good capital allocation even if things seem uncertain in the future. A bad business + future uncertainty can be a dangerous combination though. Regards.

  21. Gautam Chauhan says:

    Good insight Vishal,
    I have been in this market for very long time and i myself have experienced the urge to buy in Bull Market, ignoring the valuations. I still own quite a few Bad stocks from the Bull market euphoria which have become “Ghar Jamai”.
    Still Learning and trying to avoid repeating the mistakes.
    Thanks again for this wonderful article.

  22. Dear Vishal,

    Well said and it would surely pay to be patient ! However do you think there could still be some companies who have not caught the fancy of investors despite the bull market. Who may be good business but undervalued. Always wonder how to find the needle in the haystack.

  23. Dear Vishal,

    Thanks for the wonderful article and was a pleasure reading. In my last 8 years have realised that good and high quality business are never available for cheap valuations. However, you article duely reminds me again that with patience we can get the high quality stocks at a better price. As always, waiting and patience has been the only true friend in investing.

    Ajay Pal

  24. Namaste Vishal,

    Have a little different question altogether.
    Is it ethical/right to invest in companies which cause direct environment/ health hazard?
    Viz. ITC, ACC (learnt that there is a considerable pollution in the vicinity of the cement companies. people are suffering from fatal diseases due to the same).
    Then it comes to mind that as such there is no activity that would NOT have a side effect (generally bad).
    Say eating biscuits is not good for health as it contains maida.
    Do know if this is the correct forum to ask the question.
    This came to mind as Factsheet of a mutual fund included name of ACC.
    Please guide.

    • Dear Sachin, the answer is very personal. If you look at it from a capital allocation angle purely, then you can invest in such companies. There’s no harm in doing that. But it’s purely a personal choice. Regards.

  25. jiten patel says:

    Very knowledgeable article. …after burning my hands in penny stocks investing because of greed I have learned the harder way…but one fine day say in 2010 I sold and got rid of all penny stocks. ..some were from harshad mehta era… 1994… but have understood the importance of value investing and at the right price….but still learning to keep patience … could enjoy the full benefits of value investing

  26. Vishal, I love you.

  27. i was on the verge of shifting my gains to a few cheap stocks.. now that is not going to happen.. thanks vishal

  28. it was great reading this one. thanks sir !!

  29. Sean Chung says:

    A very good article. Remind me to be patience to wait for the opportunity. Thanks

  30. Vijay Maske says:

    Great stuff Vishal !! M following u..

  31. Vishal Ji,

    Great Article! We need more of these articles to enable us to understand the act of Right Investing and help us deploy our capital in the best of the companies… Thank u once again.


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