This post pertains to current market sentiment, perhaps not totally in line with thread objectives. I hope it can be excused until I start a thread of my own.
The returns you make from the market are a function of what the general environment is like, what the business does, what the fellow shareholders do and what you do. First two you don’t control. The last you control completely and the last but one, you can to a large extent control (by keeping away from social media so that it doesn’t influence your buy/sell decisions – so you are not in businesses with a lot of people with ultra-short term views trading beta).
In times like these we get to know who your fellow shareholders are. There was no reason for a lot of stocks to have run up in the last couple of months, just as there is no reason for them to fall now. In raging bull markets, everyone’s time horizons shrink unreasonably. Good stuff 3-6 months out get priced in 1-2 months and correct in 3rd month and recover in 4th month to get back to what was discounted in first 1-2 months. This has been the story of this bull market. If things keep with trend, recovery should happen in last week of March and April before Q4 numbers start rolling in – but not before weeding out holders who have no idea what they are holding by probably falling even further.
People know macro is good (oil, deficits, gdp, rupee, us10y), economy is good, and in all likelihood Q4 numbers are going to be good. Valuations though have been very expensive since about last Sept. A lot of it got backfilled with better earnings in Q3 as macros cooled off. Still there’s talk of a crash. I think a 10-15% correction at index level and a 20-30% at individual stock level is par for the course in small/micro caps even in a trending market. (You will be surprised by the number of 20% drawdowns even in a perpetually trending stock like VBL). Individual stocks irrespective of their caliber can fall more than a index or pf simply because their tops were made at a different time than the pf and they probably ran up lot more than the pf and carry different weights w.r.t each other.
A rush to exits though means throwing the baby with the bathwater. If you never marked up the pf when it went up unreasonably, you probably don’t feel the pinch as much as someone who rejoiced and posted PnL screenshots only to watch it all evaporate in a week. This is where understanding what you own and why and what your time horizon is makes a difference.
Instead of picking yet another business to analyse, sit down and analyse yourself. Read your old trade notes. Read what your expectation for the year was, when the year began. Read what you felt like in the last drawdown (say Sept or Dec or Feb) and at what level are you at currently from there and so on.
Writing this because there doesn’t seem to be room for sanity – only extreme optimism or extreme pessimism alternating with each other.
Disc: No recent trades since buying Shaily. P/f down ~10% from top as of today, up ~13% for the year. Would be very happy to close the year with ~20% returns which was my expectation starting the year after a phenomenal 2023. Just a novice sharing my thoughts.
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