Responding to readers
Dipen Sheth May 15, 2008
An interesting web community is taking shape around the Wealth Management blog (you can reach our blog by clicking on the MT Blogs link on the right margin of our homepage). Our online readers, who get a head start on our magazine subscribers when it comes to tracking the model portfolios, have stirred into action. I was pleasantly surprised (and secretly proud) to see some very serious comments being posted from time to time. We will therefore devote this instalment of the portfolio review to disseminating some of the more interesting online comments and feedback from our readers.
Our last portfolio review drew indignation from Sameer Saxena, whose previous request to run a back test on our original holdings provided some food for thought recently. He alleges that our recent movement towards cash is “a classic case of trying to time the market”, and asks whether “safe stocks are to be treated this way?”
Your point is taken, Sameer, and I can go terribly wrong in selling. My defence here is that when the market as a whole looks vulnerable, it’s increasingly unlikely that a Tata Power or a National Thermal Power Corporation can withstand the downward momentum. Hence the leaning towards more cash, at the risk of looking foolish for a few months.
On to Lakshmikanth, the most prolific of all respondents on the MONEY TODAY Wealth Management blog. He is a committed Buffetologist, and is critical of the heavy churn in the portfolio. Says Lakshmi: “The worst thing any fund manager could do in his stock portfolio is to buy and sell on a frequent basis and add costs which eat into returns.” (True, sir. But just think of what might have happened had I encashed on our 60%+ gains in Wealth Zoom in early January and sat on 60-80% cash!)
Further, he says that we must “buy a good business at right value and sleep on it”. He also quotes Mr Buffett: “To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of them.” Looks like I'll make the grade, Lakshmi!
In response to Lakshmi’s critical comments, I’d be tempted to hide behind Pramod Palathinkal’s support. Says he: “My sympathies are with Mr Sheth. The crash which started sometime in mid January was not predicted by most people… The future strategy should be to invest around 70% in stocks and stay invested for at least one year.”
If I had my way, Pramod would win the best comment award. Consider this: “I have no doubt in the fund manager’s ability to pick stocks, as all good stocks in current market have been thrashed due to change in risk perception!”
No Pramod, I’m your fund manager solely because my mandate is to beat the market. And if I can’t do this consistently enough, Money Today will find someone else to do the job.
Ditto for Zarir Shroff: “You seem to criticise yourself too much. I have been observing both the portfolios from the beginning and I feel your selection has been very good. This is only an erosion in the profit in the portfolios. Most people have lost their shirts in this market. Ideally you should not have invested at 20,000 levels which were baseless and kept cash on hand. You could also invest in defensive stocks e.g. pharma, tech, etc. Keep up the good work in mid-caps especially.”
With the likes of Zarir and Pramod to back me, my job at MONEY TODAY’s model portfolio manager looks secure. At least till the next crash!
And the winner is ...
Finally, the winning comments have come from Amar Harolikar, who is probably an ultra-long shot technical analyst. His take on the Sensex spans seven (yes, that’s SEVEN!) years, sounds eerily like an Elliot Wave hypothesis in disguise, and looks at the Sensex going from 10000 to 45000 (no less!). Amar wins.
This is what he has to say about our portfolios and his strategy: ?gThe Sensex is likely to breach the 10000 mark in the next 18 months period. In the recovery rally, it is likely to go up to 40000 (min 25000) by September 2013 and 80000 (min 45000) by 2016.
"This is the time of opportunities for the long-term investor. It makes sense to start investing in a staggered manner when 15000 is breached (75% probability), and at 12000 (50% probability) and 10000 (25% probability)."
Me: (I only wish it was that simple...)
"My accumulation strategy is as follows:
Me: (Thanks Amar, I'll keep these in mind!)
Any monthly savings is to be held off and invested at 12000 and 10000 breach. Lots of this sounds a bit extreme and controversial. Economic cycles and markets have almost always sprung an "extreme surprise" in the past.
Me: (Absolutely agree; we are in the middle of one such surprise right now)
Amar, although I have no enduring faith in technicals, what you are saying makes some sense to me. I am tempted to sell off both portfolios totally, and sit on 100% cash, now that we are close to 18K, after breaching 15000. What do you have to say to that?
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