Well, Ranbaxy’s up 20.27% since I bought it (and spoke about contrarian investing), in less than two months. All my calls, but one, have worked out for me. More to be added to this post tomorrow. Haven’t felt this sleepy in ages.
In the morning
Pardon the slightly inebriated ‘Yippee!’ above. Here are some random thoughts on the current investing scene:
1. If you like something, the best time to invest in it is NOW: I’ve wanted to invest in Tata Motors for the last two and a half years, after I read about certain financial restructuring, an acquisition and a little about their future plans. The 1 lakh car doesn’t inspire any confidence, though. Tata Motors has been consistently going up, and as usual, the poacher in me is lying in wait for a deep fall that will probably never come. If the business plan of the company seems sound and you have faith in the management, best to take a long term call and invest forever. The only thing that can adversely affect Tata Motors, perhaps, is a marked increase in raw material cost.
2. IPO’s are shots in the dark: and I invested in the one barely gained when it opened. From what I’ve seen, private sector IPO’s give better immediate gains. Also the stock market looked stretched on the day that the IPO listed, so the jitters of being around the 10k mark could have kept investors from investing. Most people approach IPO’s without exercising due caution, so from Moneycontrol.com, here are some factors to consider when investing in an IPO. Here’s a listing of IPO’s since 2005, and their relative performance. Do you see a trend?
The IPO’s coming next up are here.
Notable losers are HT Media and Jet Airways. HT, I believe, will improve from current levels over the next couple of years. Jet Airways is the most systematic of airlines with very sensible spending unlike one of its competitors, which is spending a lot of money on brand building and taxing its staff- not realising that the Indian consumer is fickle and will not hang around once your booze advertising budget stops funding the frills on your low cost airlines. The other, more sensible competitor is hindered by lack of sufficient Airbus aircrafts, so cannot make up for delays using replacement aircrafts. In fact, their metro business doesn’t seem to be profit-making, and is hurting their brand equity.
3. Why sell? I think I’ve spoken about this before. It was suggested that book profits at…4000, 4500, 5000, 6000, 7000, 8000, 9000 levels. The same has been suggested at 10000. My point is quite simple – I’m a part owner in their business. If like the economics of their business, and have faith in their management – I’m not going to sell my stake and lose out on future gains. Sure, had I the time for buying-selling-buying-selling, I would have gone for businesses I didn’t know about and taken more risks. Why should I not make 20% a year without much hassle? If the market is going to collapse, and really collapse, I’ll at least recover my cost. I’m willing to take the risk with the rest, cause I don’t think the Sensex will tank to 2800 levels from here.
4. To PSU or not to PSU?
I’d say that one should stay away from PSU’s. Their decisions are not entirely independent, so profitability is only one of their concerns. Welfare related decisions are forced upon them, even if they cannot afford them. And different companies have different goals: MTNL has justified their One India plan saying that they want to become the largest communications company in Asia. You know what they say – the bigger they are… It’s not really a sound policy (heh) because it impacts their margins. Sure it prevents churning, but it adversely affects their margins and bottom line. I paid my tution fees to the market by buying into MTNL during the Ketan Parekh days, and lost money on it. I’m wary of PSU’s, unless they are in a monopoly situation.
I also work on a hunch, and go with my gut feeling. I had a gut feeling about Ranbaxy, over and above the contrarian opportunity I saw. To invest in the Andhra Bank, I sold some of my loss making short term investments (I’m terrible at short term) to invest in a couple of IPO’s (that didn’t work out either). What I did do right was to not exit a sugar stock because sugar stocks had tanked on that day. Since then, they’ve rebounded dramatically.
Major disappointment with the IPO’s recently, though.