Don't worry, be happy

Focusing on businesses that don't change with time gives you peace of mind during turbulent market conditions

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At this point in time, equity investors' favourite game is to try and predict the impact of the forthcoming elections either on the markets in general or, for the more intrepid, on specific stocks. It's an entertaining pastime, great for shooting the breeze with investment-oriented friends, but probably not of the greatest practical use.

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A more useful activity might be to give some thought to the patterns that are revealed by external upheavals like elections and so many other events. There could be interest rates, wars (both violent and trade), commodity prices or whatever. However, as the famous Jeff Bezos letter to shareholders in 1998 pointed out, the question to answer is not what will change but what will not.

Here's what he said: 'I very frequently get the question: 'What's going to change in the next 10 years?' And that is a very interesting question; it's a very common one. I almost never get the question: 'What's not going to change in the next 10 years?' And I submit to you that that second question is actually the more important of the two because you can build a business strategy around the things that are stable in time.

In that old letter to shareholders, Bezos goes on to say this: '[I]n our retail business, we know that customers want low prices, and I know that's going to be true 10 years from now. They want fast delivery; they want vast selection. It's impossible to imagine a future 10 years from now where a customer comes up and says, 'Jeff I love Amazon; I just wish the prices were a little higher,' [or] 'I love Amazon; I just wish you'd deliver a little more slowly.' Impossible. ...When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.'

It's the same with investing. If you are investing in a business that is going to become uneconomic - or at least suffer a big shock - based on anything that may turn up in tomorrow's news, then the problem is not with that business but in the very approach to investing. So what doesn't change in investing? What are the characteristics that make a stock politics-proof or, more generally, news-proof? That's rather a long story actually, and not something that I can sum up in a few sentences. That's what this magazine, as well as the accompanying premium service Value Research Stock Advisor are all about.

If you feel that a company is going to be doing badly because the government in Delhi may change, and therefore feel the need to be able to predict the elections in order to take a call on the stock, then you already know that you should not touch the stock. Unfortunately, in India, many businesses appear to be heavily dependent on what the government will do. However, this appearance may well be illusory.

Take airlines, for example. It's a heavily regulated sector, making all airlines dependent on government actions. But compare Jet Airways and Indigo. Both have promoters who know how to keep everyone happy, but Jet's Naresh Goyal has always been notorious for being too heavily dependent on the happiness of government decision-makers. The result is there for all to see. When the business got tough, it turned out that despite everything that Goyal tried, keeping customers happy was important, too.

That's the kind of thing that Bezos points out, and those are exactly what we and our readers focus on.

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