indianotes

Back after a short vacation, the headlines suggest the world has been reinvented – again.

Before we could digest the India-EU FTA, the Budget was announced. Then, out of the blue, came the India-US trade deal. The Sensex didn’t like the Budget, but loved the deal, expressing its emotions in no uncertain terms.  In the meantime, silver and gold are gyrating madly.

Volatility breeds anxiety and uncertainty. TV anchors love this, as do the army of experts, and opinions abound: Higher STT will hit markets. FII investments will bounce back. Valuations are a concern. Earnings will recover next quarter.

Alas, these wise men and women, after hours of cacophony, leave us no wiser.

Predicting near-term trends is always seductive, even believable – one can justify anything plausibly. The television and social media pundits come across as smart, educated, knowledgeable and persuasive. And often sport impressive credentials. As a result, all of us (including me) get sucked into the game.

But does anybody know what Trump will do tomorrow? Or who will start the next war? Or whether the monsoon will behave? Yet, forecasts are delivered with remarkable confidence – and a straight face!

The reality is that all this is just noise.

Investing is not a game of timing. It is the discipline of identifying good businesses and holding them patiently. Investing your hard-earned money based on your ability (or someone else’s ability) to predict the near-term future is foolhardy. Markets fluctuate; businesses compound.

Both lived experience and lessons from great investors suggest that sustainable (and above-average) gains come from a less frenetic investing style.

The formula is simple: identify quality companies with strong growth prospects, and buy when they’re cheap.

Simple but not easy! This involves dull work – reading annual reports, studying industry dynamics, understanding competitive positioning, assessing valuations and whatnot. More than that, it requires immense patience and the ability to go against the crowd.

Much easier to follow the advice of the articulate expert on YouTube!

Funnily enough, it’s the shenanigans of traders and punters, including FIIs – that often create the conditions for value investors. In mid-2024, speculators drove small-cap stocks to absurd valuations. Today, many of these have lost 50% or more, even as indices have moved sideways.

Rather than guessing what will happen tomorrow, we may be better off identifying the quality companies amid the trash.