“What is happening with the stock market, Vishal?” my very concerned trader-who-thinks-he-is-an-investor friend Ravi asked me on phone.
“Why Ravi, what happened?” I asked in my usual show of ignorance.
“Hey, haven’t you seen the crash in small and midcap stocks?”
“Okay, so you already know what is happening with the stock market, right?” I asked.
“Vishal, I have already lost all my profits in this crash, which I made during the past two years.”
“Oh! Were you playing around with stuff like Vakrangee, or PNB, or Suzlon?”
“I know I am bad at investing, but not so bad Vishal. Luckily, I never got into these stocks.”
“Wonderful. Now tell me how I can help you,” I asked.
“Tell me if you have any clue where the stock market is headed?” Ravi asked.
“Sorry, I have no idea where the market is headed.”
“So what are you doing these days?” he asked.
“Well, a few things. First, inspired by the movie The Bucket List, I am preparing my own list of things to do and places to travel before I die. Then, I am planning my upcoming family holiday. I am also meditating a lot these days. Plus, I am practicing intermittent fasting.”
“Oh, not about what you are doing in life, but I was asking what you are doing as far as your investments are concerned, and as far as stock markets are concerned.”
“Well, nothing much there except studying businesses as usual and trying to find opportunities to invest.”
“Wait! But you said you have no clue where the market is headed. What if you buy now and it crashes further?”
“How does that matter Ravi when I am looking at the next 15-20 years?”
“Oh! How can I forget I am talking to an eternal optimist!” Ravi said. “But you still may have some clue where the market is headed in the next few months?”
“No, I have no clue Ravi.”
“I read in the papers recently of experts advising to buy stocks at every fall because they see corporate earnings growth getting better going forward.”
“That would be great Ravi, but believe me, no one has any clue where the market or corporate earnings are headed in the next quarter or year.”
“How can you say no one has any clue! These are experts, and have seen various cycles like these.”
“I am not doubting that Ravi, but there is no point making or believing in predictions, especially when they are about the future.”
“Stop you, Vishal! It’s a serious matter and you can’t stop joking!”
“What’s so serious about a market crash Ravi?” I said. “For long term investors, these are happy times.”
“You are a sadist, I know,” Ravi said. “But coming back to what the experts are predicting, they say that only way forward is up, after we get over the current bad times that is.”
“Well, that’s a reasonable way to look at the situation,” I said. “But the economy and stock market don’t follow fixed patterns. A down period will mostly be followed by an up period – law of averages, you see – but no one can predict with any degree of certainty when the cycle turns, and whether the turn is sustainable.”
“So how do you invest in such times when no one can say anything with any certainty?” Ravi asked.
“The rule is simple. Buy simple, high quality businesses that you understand, when they are available at reasonable or cheap valuations, and be willing to stick with them as long as they remain high quality.”
“That’s the same, old boring advice, Vishal. You don’t have anything new to suggest?”
“Well, my advice is like you. It just doesn’t change,” I said with a smile.
“Okay, but still, what kind of return do you expect the market to give in 2018? I just heard on CNBC a smart stock analyst predicting a 10-15% return this year, and with limited downside. What’s your view?”
“Well Ravi, if I ever had a view, I would’ve been on CNBC too!”
“Forget it Vishal! They won’t ever call you on CNBC with your kind of ignorance. Anyways, I also read in the ET article a very respected fund manager saying that this is the time to go marginally overweight on equities and by the end of the year, fully overweight.”
“Hmm, so effectively that fund manager is predicting that the market is likely to crash even further!”
“How can you say so? He never said that!”
“Well, I reasoned that you should buy more stocks i.e., go fully overweight, only when they are very cheap. Right? That is exactly what the fund manager is implying, isn’t it?”
“I don’t know Vishal, but I am scared to invest in this market where no one knows how much further it can fall.”
“You should stop investing in stocks directly, Ravi,” I said. “Better start SIPs in a well-managed equity fund, in case you find one. But not direct stocks.”
“Why do you say so! I have made so much money in stocks in the past 2-3 years.”
“Well, Ravi, making money in stocks when everyone is making money in stocks isn’t a big deal. Rather, it’s the ability to handle good and bad times with equanimity, and stay true to your investment process that matters, because you are looking at the long-term growth of businesses and not short-term stock price fluctuations. And since you seem to be making clear that you don’t know how to handle scary times, you should stay away from, or reduce your exposure to direct stock picking. And by the way, these aren’t scary times anyways. We have still not seen the capitulation or vertical declines like we have seen in the past big crashes…”
“Hey, you are trying to scare me more. You aren’t a true friend Vishal!”
“I am your true friend Ravi, as I am trying to save you from the agony that comes to people who don’t know that they don’t know what they are getting into. And as the noted financial writer George J.W. Goodman wrote this in his wonderful book, The Money Game – “If you don’t know who you are, this is an expensive place to find out.” By “this”, Smith meant the stock market.”
“I don’t want to talk to you anymore on this subject, Vishal!”
“Well, my dear friend, I too have nothing to add.”
The Money Game – “If you don’t know who you are, this is an expensive place to find out.” George J.W. Goodman aka Adam Smith .. My favourite quote about the stock market for sure.. The Money Game was a witty book and lots of fun. If you have not read it already, check Mr. Goodman’s “Super Money” published around 1974 where WB was profiled for the first time.. I read the book around 1975/1976 and was so impressed with Mr. Buffett that I looked up the price of Berkshire Hathway in the papers.. Shares were trading around $ 60 – 65 + I did not have the vision or the mulla to do anything about it.. 10+ years later where I could have taken a small position, if I had any smarts, I did nothing.. Shares were much higher by then of course.. Today BRK-A closed at $294,380
Eswar Santhosh says
Sorry for asking a non-market related question here: What kind of intermittent fasting schedule do you follow? How long have you been practicing it? What difficulties did you face initially? Any positive or negative effects you have observed so far?
(Interested, but yet to try Intermittent fasting)
Sabyasachi Sadhu says
5:2 and Other Intermittent Fasting Diets Could Raise Risk of Diabetes, Scientists Warn.
Type 2 diabetes: Intermittent fasting may raise risk
Intermittent Fasting May Up Diabetes Risk: 5 Health Risks Of Intermittent Fasting
Saurabh Vohra says
Vishal, I have to say I think this Ravi guy is a lost cause.
He is always so confused !! 😀
Abhinav Singhal says
We all have a Ravi in us…thanks for being there with him Vishal! 🙏👍
I am curious to know, how you manage money matters for your personal expenses, that too in Mumbai.
Please share your experience, that will help us to solve our money issues.
I am sorry to ask, non market questions here.