Monday, March 05, 2007

Rule No.1 for Equity Analysts – CONFUSE !

I had always maintained that best time to invest in a stock is when no analyst is talking about it. The one thing I look for is to make sure that it generates adequate cash from its operations ( to support its financing & Investment activities without adding in too much of fresh debt ) and makes it regularly to the dividend list.
My portfolio modeled after this theory is still in good shape, so I am actually walking my talk.
I had noted that a stock should've rallied 100% over one week to draw the first analyst's attention to it. Soon all of them would be talking it up. That’s precisely when I exit it. This theory of mine is well tested and I recommend it to one and all.

Hence I am qualified to spurn those late bloomers.

Look at this. Till the week before last, when Asian markets were performing well, all these analysts were doing an encore “this is an extended bull market – stay long”. Now since last week, may be because of Yen carry trade unwinding or general fatigue associated with any long bull market, when investors booked some profit the market suckers have turned bearish. And how much at that ? Just stopping short of saying “Apocalypse NOW” ! Full report published in Economic Times today is here.

According to this report which quotes some analysts, things seem to be changing fast considering that the risk appetite for emerging equities has declined. “Even from these levels, there is more possibility of a downside than an upside,” says one of the top three FIIs with a large investment portfolio in India and other emerging markets.

It even goes to say “The depth of the Indian market has been questioned by many FIIs. Even though the Indian equity market has seen a correction in line with other emerging markets, the spiralling effect is scary. Part of the reason is because small investors, who are more like speculators, invest directly into the equity market”.

Were they not scary earlier ? Why do you suddenly feel cold after it had declined by 20% ? Where were you when new listings ( construction, infrastructure stories) with no track record were offering 50% plus returns ? Now tell me, how much does your wife trust your judgement ?

Yet taking a contrarian view, there are some who believe a further correction would be the right time to buy the ‘India story’. A Morgan Stanley analyst, based out of New York, states: “My view remains the same as reported in our research note. This is an extended bull market, and a correction is long overdue. So, we would buy after a 10-12% correction in the Indian equity market.”

What is an investor to make of it ? I use my own judgement which is to buy more of good stories with every decline. Tell me, would you buy these morons ?

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