Having spent 15 years in Indian Stock market, there has never been a time when it felt like absolute chaos and gambling den. Across the globe people are buying and selling stocks not for investment but for story and for speculation.
I come from old school of buying / investing in assets at reasonable prices whether its real estate, share in companies (equities), websites/blogs etc which has at least one of the two essential characteristics:
1. It gives me cash flow
2. Holds its value without much fluctuation.
Of all the assets I own, equities have clearly become a non-investable asset class. Its neither giving me even a bare minimum cash flow due to absurd
valuations nor holding its value stable. The price fluctuations are so
monstrously large that its beyond anybody’s capacity to comprehend. We are
adding and losings trillions of dollars in market value in a year based on perception
and story. This is extremely unhealthy for equities as an asset class as subconsciously
investors lose confidence on ownership in companies and they refuse to buy at
any price when prices start to fall.
Compare it with an asset class such as Real Estate or Gold.
When real estate prices in your neighborhood corrects people won’t hesitate to
commit money and there is floor to the prices. They know they can use to for
shelter, shop or rent depending on the nature of the property. Similar is the
situation with Gold. When prices correct even 10% people rush to purchase gold jewelry
for wedding or investment. Stocks on the other hand are losing and gaining 10,
20 or even 50% in a day. This makes it very hard for people to stay invested
which is a very dangerous situation for capitalism and stock market where companies
Individual companies are valued at trillions of dollars
these days. Apple + Google + Microsoft is valued at over 5.5 trillion dollar
which is 2 times the UK economy. Companies are no longer being valued on
earnings and sales and value investing is claimed to be dead. People are
valuing stories. I asked myself yesterday, will I invest in a real estate
property with excellent story but no cash flow for next 10 years and the answer
was absolute ‘NO’. So how Can I invest in stocks with 100 pe multiples where theoretically
it will take 100 years to get back my money.
All the money printing in the world has already created
massive Inflation is paper assets which will eventually flow into good and
services creating massive consumer inflation which will force the madness of
Central banks worldwide to end this mindless money printing. It might happen in next 3 months or it might
take another 3 years who knows, but valuation have always been my guiding torch
and I won’t be leaving its company specially in this time of madness even if
the pundits across the world says it’s dead. Common sense can never be dead. It’s
the greed at that moment that is trying to make us all believe that common sense
is for fools. But those who have developed grey hairs like me while being in
the market will resonate with my thoughts that the protection of capital is far, far,
far more important than appreciation of capital.
Sometimes writing your thoughts makes the big picture even more clear and helps you in taking good decision. I have written this post during market hour today as I felt tired watching the madness in the market and thought of spending some quality time penning my thoughts. This post will also help me in future to go back in time and read what I used to think back then.