I’m going to go out on a limb and be a contrarian. I think we are
overdoing this pessimism business. By ‘we’ I mean all of us —investors,
businessmen, the media et al. In fact, pretty much everyone whose voice you
hear nowadays lamenting how the country is going to the dogs. The problem with
this view is that this country has always been allegedly going to the dogs. I’m
in my mid-forties and in my living memory (at least since I was old enough to
read a newspaper), there has practically never been a time when this country
was not going to the dogs.
And yet if you look around every few years and compare it to what
has gone before, almost everyone’s lives are better than before. Sure, some
people’s lives are not as much better as could be, and almost no one’s is as
much better as they would want. However, the fact remains that when you step
back and take a broad look at where we are going, there is more room for
optimism than there is for pessimism.
Let’s apply the concept of rolling returns to the general economic
conditions in the country. Take any 10-year period in the last forty years and
compare the situation at its beginning with its end and you will see what I
mean. Were things better in 1970 or in 1980? The answer is obviously in the
latter. 1990 or 2000? 1984 or 1994? 2000 or 2010? It’s the same answer every
time. When you stand back and take a 10-year perspective, the forward surge of
Indian economy and businesses is always obvious. Certainly, some 10-year
periods are better than others but the situation never regresses. Some might
say that a 10-year period is too long, but that’s not much longer than what
would qualify as an appropriate period for a long-term equity investment.
Now, it’s possible in theory that the next ten years will be
different and the country will be much worse off in 2022 than it is now. But I
wouldn’t give too much to the chances of this happening.
In investing, there’s a saying that a rising tide lifts all boats,
meaning that in a booming market, even bad stocks go up. At Value Research, we
firmly believe that the current situation is the reverse of that. A receding
tide appears to be sinking all boats. For a long time now, equity markets have
been so bad, that even good stocks have fallen precipitously. However, this is
as misleading as the rising tide. In the general gloom and doom that surrounds
us, there are a large number of stocks that are available at very attractive
prices. And therein lies an opportunity that the value investor must not miss.
The essence of value investing is to buy good stocks at a price
that is less than their intrinsic value. By this definition, an Indian equity
investor is just about in value investing heaven right now. Stock prices have
been largely static or falling for a long time while profits have been
proportionately less under pressure. The result is that there are some great
valuations available on many stocks that can be invested in for the long term.
Just about the worst thing that investors can do at this juncture
is to get too focussed on the short-term volatility or the general gloom and
doom mood. As I said, in theory the pessimists could turn out to be correct.
But I wouldn’t bet on it and in your investments, neither should you.
(source:- www.valueresearchonline.com)
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