In 2018, I completed 17 years as an investor in Indian Equity Markets. However, I was an investor through out. I was rather an explorer, with incorrect expectations, half-cooked knowledge, and always poor on allocation.
The reason I am sharing my experience here is I want young lot to learn from the mistakes I have made, and try to avoid them. Not that I expect you’ll avoid these mistakes because everyone has a different curve of learning in equity markets & you are entitled to have yours.
This was the year when we had just sailed through a buzz word called Y2K. Some of my friends even told me that world is going to collapse as digital systems (computers & mainframes) will reset to ZERO because it is year 2000. So, computers would not be able to distinguish between a binary ZERO and a literary ZERO. Forward 2001, and we were already amazed to see non of the computer systems really confused between binary ZERO and a literary ZERO. It was us, humans, who were all confused.
This confusion lead to panic in global markets. And a chain reaction triggered. IT companies & Y2K companies were beat to dirt for no reasons. And, that is what caught my attention.
In sum, year 2001 was a full of excitement and new beginnings. But that was not all for 2001.
Then came the scam – The Ketan Parekh Scam – See price rigging below
- A company called ValueSoft rose from 600 rs to 8000+ rs
- Sonata software went up from 125 rs to 2100+ rs
- Zee Telefilm went up from 125 rs to 2100+ rs
- Himachal Futuristic (HFCL) went from 50 rs to 2400+ rs
There was so much euphoria in the market that people who were active in equity markets that time thought there is no turning back. Everybody wanted to own a K-10 stock (A 10 stock list by Ketan Parekh), and there was so much speculation about which new stock would make into K-10 list.
If this wasn’t enough, Indian Parliament was attacked by suicide bombers and market got another reason to plunge.
In a nutshell, 2001 was a year of carnage, it was a year when retail investors lost their everything.
Next 2 years were about band-aid work. And near 2003, people started hoping for a recovery. Such used to be the headlines in news papers
- Sensex could reach 4,500
- Nifty can sustain 1200 levels
This was the precise time when I started investing my pocket money into the markets. My mother used to ask me to note down all the stock/company names that’d be shown in a new hour, and keep track of prices daily. This is how I started – Tracking Price Action.
The mother of all bull run (then) began in early 2003 and in 4 years Sensex jumped 5 folds! From sub 4000 to 21000 in just 4 years. This was the mad rally I had ever seen.
However, for me personally, this rally was kind of partially missed because of following reasons –
- Never understood the importance of allocation
- Always relied on friend’s advice to invest
- Spent thousands on Power-My-Trade service offered by MoneyControl
- With paltry sum of 1 lac rupees, I was invested in more than 70 companies
- I had Ajanta Pharam bought at 13 rs a share in 2006, but only 10 shares
- I bought SKS Micro at 98 rs a share, but 25 shares
The list is endless. The important point is – This was my time of making mistakes. However, it wasn’t all about mistakes, I made a decent money (relatively) in one of the darlings of the stock market – Symphony. I scooped up a 1000 shares at avg. cost 11.20, but only to sell at 55 rs. This was my 1st taste of multi-bagger!
After witnessing stupendous returns, one of the worst things happened – Over Confidence.
I was so confident of making money from any market that that bull run kind of put me into illusion that I am an ace stock picker. But, that’s wasn’t totally true. I was really good at picking stocks, but problem was elsewhere – Psychology.
I was so reckless in buying & selling stocks that I got into intra-day trading. Trading daily was my dope. I had to do it, no matter what. This ended up after I saw my yearly ledge settlement payment to my broker. I had paid over 2 lac. in just brokerage, and made 2.1 lac. in return. If I try to set off the balance sheet, for 4 years I was only trying to get back what I paid in brokerage. This was a biggest shock of my investing journey thus far.
Then Comes 2008
I was so used to see new high on Sensex everyday that word such as bear market, fall, depression were nowhere in my mind. And then there was 2008. Before the real crash began, Reliance Power IPO had kind of sucked 90% of the liquidity from the market.
I borrowed money from my father to invest in the IPO. I still remember walking into one of the ICICI Bank’s branches, depositing huge money, and applying physically for the IPO. I even remember ride back to office from ICICI Bank.
Reliance Power IPO was kind of tone setter for harder fall in Indian Equity Markets. From pathetic allocation to nearly putting everything in one IPO, I was making all the mistakes that anyone could do.
Rest is history – I lost everything I invested in Reliance Power IPO, I lost the money my father got me by breaking his Mutual Fund Portfolio, and it was the start of the dark phase.
Over next 12 months, I was completely disconnected from Indian Equity Markets. I only had Mutual Fund SIP going on and I completely stopped looking at markets. I had rather forgotten markets totally.
2008 has eroded so much money from retail investor’s purse, that majority of those investors only returned to markets in 2014.
This loss was so bad that I paid my father’s money back in installments over 5 years. I did not take a vacation, did not buy a new phone, absolutely nothing.
This loss kind of kindred something deep within me. Instead of blaming markets, I was interested to learn from my mistakes. I wanted to understand what really caused the fall, and my learning began.
It took me 2 years to fully understand the concept of a PE ratio, and everything that goes behind it to manipulate the value. Knowing the definition wasn’t enough. I had no clue to words such as value/price, fair price/cash flow, PE ratio and so on.
2009 to 2012
These 3 years were fundamental brickwork of my entire success. The immense reading, 1000s of pages of Annual Reports I used to read every month. I was voraciously reading anything and everything that came my way. And it started dawning upon me that wealth will only be made by holding a good company, at fair valuation, and at a right allocation.
- You can never make wealth by holding a good company, at outrageous valuations
- You can never make wealth by holding a bad company, at dirt cheap valuations
- You can never make wealth by holding a good company, at fair valuation, but at useless allocation
These 3 are my thumb rule when I go on to buying a stock.
And following happened –
- I compounded my PF at a whopping rate of 90% + YoY
- I got the allocation just right to make right investment at the right price
- Developed my own method of valuing companies, and understanding when not to use traditional valuations
- Started looking at buying a stock as investing in the future of the company
- Stopped trading
- Started to hold during choppy times & even averaged at dirt cheap levels
- Picked SKS Micro at 98, Yes Bank at 200, TVS motors at 70, Motherson Sumi at 110, and so on
I do not intend to go into deeper details here, neither I claim I picked best stocks. However, one thing I learned and that was to find discounted stocks and get in with right allocation. The list is only indicative & partial. This is not a recommendation to buy or sell. It is only relevant in purview of our discussion here. I know many people who own way better stocks at right allocation than what I managed here.
2012 to 2018
For me personally this was the time of implementing everything I learned during past decade. I think every successful investor has at least 7-8 years of history full of mistakes that teaches him what not to do. Then all that investor has to do is wait for next bull run, and do everything right.
Year 2012 was when I started with right allocation, right price, focusing on value than price, looking at businesses from scalability perspective and that helped look beyond quarterly results.
Often retail investors sell out in panic after seeing one bad quarter. However, how realistic is it for any business to keep on reporting very good numbers, every quarter? The ground level dynamics change rapidly, and recent changes in our economy – GST, Demonetization etc have impacted every sect of the economy.
For me the definition of a good business and a bad business is as follows –
- Good Business – Over a decade, a good business is one that has 7-8 years of good growth, and 2-3 years of average growth or a flat growth
- Bad Business – Over a decade, a bad business is one that has 2-3 years of good growth, and 7-8 years of average growth or a flat growth
2018 to Future
I am super positive on Indian economy. We are changing so fast that a lot of avenues are opening up. It is a matter of time when we discover multibaggers & wealth makers in digital, data driven, retail, consumer FMCG segments.
The key to success would be learning to avoid noise, and focus on the business, and not the price action.