Calamities will come and go, stocks will keep compounding
Ramesh Damani made it clear that there is no merit in our avoiding to buy stocks in the pretext that there is uncertainty in the air.
He reiterated his pet point that despite all domestic and global uncertainties, the Sensex has given an eye-popping return of 6000% over the past 30 years.
“When I joined, the index was 800, today it is 40,000 and in the last 30 years, India has faced all sorts of tragedies. We have sent our gold to the IMF. We have had Kargil. Governments have come and gone. But the long term is a triumph of the optimist,” he stated.
RAMESH DAMANI: Index Has Compounded 18-20% Over Last 25 Years
— BTVI Live (@BTVI) July 4, 2016
He also pointed out that while we are going through a particularly bad phase right now due to the slowdown in the economy and slowdown in corporate profits, the arch of the stock market is still pointing higher.
He advised that we should focus on finding “great businesses” and not worry about anything else.
“What I have learnt over long periods of time is to find great businesses and not worry too much and sit it out. You might obviously get gains immediately, but if you can find stocks that will compound over periods of time, you will have served your portfolio and yourself well“.
India will do what Japan did in the 1960s – become first World from third World
Ramesh Damani noted that NAMO has promised to make India into a $5 trillion economy.
Let it be our collective endeavour to make India a five trillion dollar economy: PM @narendramodi
— PMO India (@PMOIndia) June 25, 2019
The announcements in the last few weeks clearly demonstrate that our government is leaving no stone unturned to make India a better place to do business, improve opportunities for all sections of society and increase prosperity to make India a $5 Trillion economy.
— Narendra Modi (@narendramodi) September 20, 2019
He explained that to achieve this goal, NAMO will have to weed out inefficiency, corruption and tax evasion.
“It might be seven years, it might be eight years, it does not really matter but we are going to be a $5-trillion economy“, he said confidently.
“India is going to leapfrog like Japan did in the 1960s when it went from a third world country to a first world country,” he added with a big smile on his face.
"The story of this bull market has been that India is going to leapfrog like Japan did in the 1960s when it went from a third world country to a first world country" https://t.co/CRV8vtxkkq
— Economic Times (@EconomicTimes) September 20, 2019
Don’t buy expensive “glamour” stocks, buy “bombed out” mid-cap stocks
There is one school of thought that investors should not stray beyond high quality stocks and should stick to well known franchises, despite their nose-bleed valuations.
This school of thought is led by Saurabh Mukherjea, the authority on ‘coffee can investing‘.
“HDFC Bank, Kotak Mahindra Bank, Asian Paints and Nestle are high-quality companies, with a stellar long-term track record and that is why people wanted to buy these stocks,” Saurabh said.
In fact, Saurabh has advised that we should not even look at the P/E or PBV of such stocks.
“With franchises of this caliber — Asian Paints, Nestle, Marico, Kotak Bank, HDFC Bank — you really should not be using PE multiples and PB multiples to ascertain their fair value. It does not work. You have to look at their ability to generate outstanding results over long periods of time and therefore buy them even at current valuations,” he opined.
However, Ramesh Damani appears to be apprehensive of buying such stocks.
He warned that the exorbitant valuations at which these stocks are quoting does not leave much on the table for us to feast on.
“Starting point values matter as does stock selection. We are buying very expensive stocks at this point hoping alpha or momentum will take them higher. They may but they typically do not end very well,” he said.
He also stated that even “glamour stocks” correct and stay in a correction zone for a year or sometimes decades after that.
“It is important for investors to find good valuations and I would suggest to them on a contrary basis to look at these midcap stocks which have bombed out completely,” he added.
He emphasized that some of the so-called “bombed out” stocks have good corporate governance, good visibility and good earnings.
“You could probably find value on those businesses,” he said.
— ETMarkets (@ETMarkets) September 18, 2019
— ETMarkets (@ETMarkets) September 18, 2019
Talk of slowdown is exaggerated
Ramesh Damani issued the soothing assurance that much of the hullabaloo about the so-called “slowdown” is exaggerated.
He pointed out that there is no growth slowdown in the retail segment as can be seen from the numbers, though in big ticket items that are not popular consumption items such as auto or cement, there is some slowdown.
It is notable that Ramesh Damani’s views are ad idem with that expressed by Saurabh Mukherjea and Raamdeo Agrawal.
Saurabh has pointed that there is a mere “cyclical slowdown” and not a “structural slowdown“.
“It is a cyclical slowdown. I strongly believe this notion of a structural slowdown is overplayed by commentators …. The more we ignore the structural slowdown crowd, the better off we are“, he said.
Raamdeo agreed with this viewpoint.
“The buzzword in the media is that there is a lot of problem! …. That kind of fear is unnecessarily creeping in,” the veteran stock picker said.
Buy ‘Sin Stocks’. They are immune from recession and technological disruption
Ramesh Damani pointed out that investors should be wary about technological disruptions like Uber & Ola and also fads like ‘Beyond Meat‘, which are playing havoc with traditional businesses.
These disruptions can torpedo existing businesses and sink them before we have a chance of taking our money out.
“I was stunned, I thought it was just some fad going on …. the economic implications are fairly staggering …..,” he said, referring to the stock price of ‘Beyond Meat’ which has taken Wall Street by storm and given a mind-boggling return of 800% since its IPO in May 2019.
Beyond Meat (BYND) has become the hottest IPO of 2019, racking up peak returns of 800% during the first months of its listing. While the stock has retreated from astronomical price levels, many investors remain bullish on its growth potential…https://t.co/pxfEbjaziq
— OptionMetrics (@OptionMetrics) September 18, 2019
He advised that we buy “Sin Stocks” like cigarette and alcohol on the premise that these are “businesses with moats” and are “recession proof“.
“If you are feeling bad, you want a drink; you are feeling good, you want a drink,” he said, implying that these stocks thrive in good times as well as bad times.
He also emphasized that the “Sin Stocks” are “great franchisees“.
Their profitability is visible for the next two, three and five years down the road.
He also pointed out that the stocks have now corrected and come to somewhat more reasonable levels and so they will continue to perform.