Bottom up, not top down

From time to time, we all fall under the illusion that equity investing is about identifying and exploiting macro trends. We feel that our ability to make money from stocks can be enhanced by studying, understanding and anticipating broad trends in the economic conditions of a country or the world. This is actually not true at all, and the idea may be responsible for investors failing to get the returns that they should be getting.

In India, this has become painfully apparent over the last few months, and especially so after the corporate tax cuts that the government unleashed. For months, investors had been lamenting that the economy was going down the drain and taking the stock markets with it. Even if that were the case, it would have been disastrous to act upon it. Unfortunately, many people did and decided to get out of investing and sit by the sidelines, apparently until the economy improved.

Then in the wake of the corporate tax cuts that the Modi government unleashed, they felt like they lost out on an opportunity. However, that's not the problem at all. It's not as if the only thing that went wrong with such investors was that they did not anticipate the actions that the government would take to fix problems; it's the very idea that equity investors should pay attention to large-scale, macro issues and invest accordingly.

The problem is that investing well and getting good returns requires a combination of skills of different kinds. Broadly, these can be broken up into figuring out which stocks will do well on the one hand and figuring out broader, market-wide or economy-wide trends on the other. After years of observing the markets and investors, I have formed a firm belief that while the former is well within the capability of many investors, the latter is practically impossible to do on a sustained basis. Recent events - the so-called slowdown as well as the corporate tax cuts - have confirmed this.

What makes this a bigger problem is that investors who do the first part right often lose money and give up gains by trying to do the second part. In theory, this boils down to choosing the good stocks and then trying to redeem them when you think the broad market is going to go down. On the way up, this means sitting with cash, waiting to invest till the last moment before the markets start rising. In practice, for most investors who try to do this, it means selling after the markets have crashed and buying after they've shot up. This does not work.

It's about stocks
Stock investing is about choosing stocks, period. If you get that right, the rest does not matter. And if you get that wrong, then again the rest does not matter but not in a good way. If you choose good stocks and combine them into a sensible portfolio and then go on investing regardless of what you read and hear about the economy, then you will make money.

And as for the problem of choosing which stocks to buy, that's a problem we are here to solve for you. As a reader of Value Research Online, you are doubtless familiar with many of our resources and freely available tools. However, one thing that we do not do here is offer a cut-and-dried ready-to-invest list. For that, we have Value Research Stock Advisor, which you may already have heard of.

What is Value Research Stock Advisor?
Exactly what the name says, it advises you on what stocks to buy. Our research team maintains a list of stocks that you should invest in. You invest in them and make money. When any of the stocks is no longer investment-worthy, we tell you to sell them. What could be simpler?

Of course, that's not all. There are obviously some more features offered by Value Research Stock Advisor but it's entirely possible to use it in the ultra simple fashion that I have described above. In fact, the basic concept of the service is exactly that - a transparent, fundamentally driven, source of ready-to-use research on what stocks to invest in.

The additional tools that we have is our Stock Screener, which is a unique tool unlike anything else that is available in India, as well as detailed financials of every listed Indian company, not just the ones that are on our recommended list. It goes without saying that our team also supplies you with updated guidance on all the stocks on our list, including the rationale for investing or selling.

This is a premium service. It provides a lot more to you than this magazine does and it also takes much more effort for us to run it. As such, it does cost a lot more than this magazine does. I won't pretend that it's cheap, but it definitely is much more economical than buying the wrong stocks! Also, it's currently available at a considerable discount. Learn more and subscribe at valueresearchstocks.com.