If you choose your stocks well, it matters little what the so-called larger picture of the global economy will be
09-Mar-2023 •Dhirendra Kumar
"It's much easier to BS at the macro level than to BS at the micro level." That's the inimitable voice of Nassim Nicholas Taleb, explaining why bottom-up is way better than top-down. I'm assuming you know what 'BS' stands for. What he's saying is that bottom-up is reality, while top-down could be just talk, and usually is.
If you are bothered about where your investments and savings are going, you must be a bit tired after being subjected to almost a year of non-stop theorising about the world while looking down from 40,000 feet. It may not be too early to get down to Earth and start looking at the details. If you are an expert talking head and are asked by a TV talking head about investing, you can speak for any length about interest rates, oil prices, global liquidity, the war economy, trade levels and so on and so forth. Quantitatively, it may or may not have any connection to what will happen. And even if, for the moment, someone's guess about the exact amount of deceleration or acceleration in the global economy turns out to be correct, what good will that do us as far as our savings and investments go?
Obsessing about things at the macro level is of no use at all. The fault lies with the 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 firmly believe that while the former is well within the capability of many investors, the latter is practically impossible to do sustainably.
In practice, what makes this a bigger problem is that investors who do the bottom-up part right often lose money trying to do the second part. When investments are doing well, on the way up, this means sitting with cash, waiting to invest till the last moment before the markets start rising. In a situation like now, it means selling out, waiting for some market crash and then waiting and waiting, and eventually, in the long run, investing well after a kind of buying panic has started. This does not work. At best, investors can hope to get stocks right but rarely the macro trends. One thing is certain - economic signals are always conflicting and confusing. Nothing new in that - they always are.
However, it does not matter. Instead, let's look at the situation from the bottom-up. Do we have the inputs to decide which companies are stronger than others; companies with enough stored-up strengths to overcome adverse conditions and good conditions better than their competitors; whose management has a track record of operational excellence and financial prudence; who haven't loaded up with beyond what they can continue servicing in bad times; whose managements have actual skin in the game in the well-being of the business? The answer to all these questions is a resounding yes!
That's the bottom-up approach that makes sense today. Why obsess over what we do not know and what no one knows? Better to stay focused on what is known and beyond any doubt. As I've said earlier: the central problem in stock investing is not making economic predictions but identifying good companies. What the RBI or the Fed does to interest rates or what happens in Ukraine or some other geopolitical arena is not in your control. It's better for you and me to focus more on what we can control. You have control over when you invest, what you invest in and what price you invest at. You can control whether you invest in great excitement in some bubble or systematically and gradually. You also have complete control over the money you are going to invest.
At the end of the day, equity investing is a bottom-up activity, not a top-down one. You make money by being right about companies and their stocks. How do you do that?
That's where Value Research comes in. Value Research Stock Advisor is pretty much what the name says. It advises you on which stocks to buy; that is, it delivers good companies to you, exactly in the bottom-up manner I have discussed. At any point, we also carry a shorter list of 'Best Buys Now' stocks for those beginning at that point. When any of the stocks are no longer investment-worthy, we advise you to sell them. What could be simpler?
The list is an input you can use as is or as a shortlist for further research, the tools for which we also provide you. One such additional tool is our Stock Screener, a unique system unlike anything else available in India, as well as detailed financials of every listed Indian company, not just the ones on our recommended list. Of course, our team also supplies you with updated guidance on all the stocks on our list, including the rationale for investing or disinvesting.
What you get with Value Research Stock Advisor
So, stop paying attention to the high-level stuff. Head over to Value Research Stock Advisor and start investing in our handpicked list of good companies.