The New Year is here. There are plenty of views going around, as to how the year is going to pan out. Will it be the year of the stock picker? Will it be a year of unilateral rallies, as in 2021? Or will it resemble a couple of years, prior to 2020, when everything was hazy? But truly, does it matter how the market will pan out if you do not have a strategy for it? So, the right question to ask is how you as an investor are going to approach the market this year.
Whether to be in cash or not
This question needs to be answered twice. Are you going to encash because markets have peaked? Or are you going to need cash because better opportunities are soon to appear? The last year did have its share of surprises as there was quite a polarisation among sectors even after Foreign Institutional Investors (FIIs) returning to market as buyers with some sectors going on an over drive, like the small cap Public Sector Undertakings (PSU) banks or paper stocks, while some continued to be under the hammer like IT and realty sector with the exception of some of their front-line stocks. The small cap PSU banks, which have been on a breath-taking rally and hence now adorably tagged as “small is beautiful” also were ugly ducklings for the longest of time.
Let us now put “you” at the centre instead of the stock market. So, the questions will be: Are you going to encash, because you are in immediate need of money, for say, a property purchase, or a wedding? Or are you going to encash, because you are in pursuit of the happy chemicals that are released when you outsmart the market? In fact, hypothalamus in your brain releases dopamine allowing you to feel good when you achieve a task, while endorphins are produced by the pituitary glands when you do something you enjoy.
Ian Cassel, the founder of MicroCapClub.com, an exclusive forum for experienced microcap investors tweeted on 16 December 2022: “All you need is a few big winners during your lifetime to beat the market. Everyone will say you got lucky, but everyone else did not have the skill to find them, the courage to buy them, or the conviction to hold them. In the end, luck has very little to do with it.”
In other words, true fortune is found by those who did not go in search of those happy chemicals. It is an interesting surmise, as who would not want to be happy? – Only the ones who did not know where to look for, or just could not. Examples of such situation are where your trading activity stops due to a regulation at your workplace, or a change in your life situation allowing you to forget some stocks. This is a discredit to the astute stock pickers who did hit the jackpot, but they are the exception. Either way, these phases, such as going on the hunt for those multi baggers, experience the misfortune of having too many of the weak ones in the portfolio in such search, or the misfortune of weak a positioning despite landing on the winners, or going in and out or markets in short intervals to make use of the ebbs and gains, are all phases that appear several times, and not necessarily in continuum. Either way, these experiences, makes you a mature investor. The frightening thing with maturity is that it might dull your ability to fear. The right amount of fear gives you a sense of whether you are positioned well enough for that elusive multi bagger. This thought is in perspective, as we move into New Year with Nifty not far from record peak, but with move 37% of NSE 500 stocks still below the 200-day moving average.
Read more articles by Anand James