Good, even great stocks are available at deep discounts. Real investors know what to do.
31-May-2022 •Dhirendra Kumar
In the decades since I started paying attention to the equity markets, I've lived through five, maybe six, sizable bear markets. In each of those, there was this 'sky is falling' atmosphere created by investors. In the 90s, the panic used to be limited to a small community of traders, but after the rise of the internet and now social media, the sky has started falling harder and faster and heavier. Right now, even though the current decline is nothing compared to the ones in 2000 or 2008-09, there's just so much constant panic-mongering that it's seriously affecting investors' perception of how bad things are. And yet, any veteran investor knows what a bear market actually means.
Without exception, every bear market or correction has actually been a buying opportunity. What is happening now is no different. Think back to the last dip in equities that was actually of a serious magnitude. In mid-February 2020, before the Chinese virus hit, the Sensex was at 41,000. Now it's 55,000, give or take. That's a fabulous 34 per cent in two and a quarter years. Except, right in the middle was the greatest buying opportunity in years! When the virus panic first hit, it actually dipped below 30,000. You can say, "Yes, but who had the courage or the confidence to buy at that point?" Well, lots of people did. Every one of those trades in March, April and May 2020 had a seller AND a buyer, didn't it? Who were those people who were buying? They were the smartest investors in the world. Think of the windfall gains they have produced out of others' panic.
Now, somehow, the mood is the opposite. One reason could be that there is a widespread sense that the easy money times are gone, and for businesses as well as the markets, liquidity is going to be a problem. This could be true, or it may turn out to be an overreaction, I have no idea. However, as an investor and an investment analyst, I'm not losing any sleep over this. Personally, and in what Value Research publishes, our entire focus is on exploiting and helping others exploit this opportunity. As the old saying goes, the time to buy is when there is blood on the streets. If the current weakness continues or deepens, remember this more than anything else.
One of the things that the 'this time it's different' crowd now says is that the overwhelmingly tech-focussed global markets have heightened the volatility and thus the risks for investors. They point to the precipitous declines in the stock prices of various stocks identified as 'tech'. The problem is that this is not a category at all. To take a mixed bag of examples, there is practically nothing in common between Apple, Netflix, Facebook and Amazon, or indeed Paytm or Zomato. Why are all these stocks tech? Because they use computers in their business? Because they use the internet to sell or deliver their goods and services? Well, who isn't, nowadays? It's a ridiculous notion and one that misguides investors.
For investors like you and me, who just want to use this opportunity to prepare the ground for future profits, the only thing that matters is evaluating individual companies. The macro stuff does not matter, nor does the sector talk, nor the indices. Actually, I could say that the macro stuff does matter. That's what is creating the buying opportunity. There are three basic concepts that investors need to pay attention to, not just at this point of time but at any point: time, quality and diversification. The rest falls into place. Remember, real investors are happy that the markets are down, and we get to buy the good stuff at heavily discounted prices.